White Paper Fourth Industrial Revolution Beacons of Technology and Innovation in Manufacturing

In collaboration with McKinsey & Company

January 2019 World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 Email: [email protected] www.weforum.org This white paper has been published by the World Economic Forum as a contribution to a project, © 2019 World Economic Forum. All rights insight area or interaction. The findings, interpretations and conclusions expressed herein are a re- reserved. No part of this publication may be sult of a collaborative process facilitated and endorsed by the World Economic Forum, but whose reproduced or transmitted in any form or by any results do not necessarily represent the views of the World Economic Forum, nor the entirety of its means, including photocopying and recording, or Members, Partners or other stakeholders. by any information storage and retrieval system. Contents

Foreword 5 Executive summary 6 1. Lighthouses: Sites Embracing the Megatrends of the Fourth Industrial Revolution 8 Seeing the light: A radical leap forward for Fourth Industrial Revolution front runners 8 Identifying lighthouses 8 2. Overview of the Global Lighthouse Network 10 3. Understanding Lighthouses: Characteristics, Differentiators and Success Factors 14 Lighthouse characteristics 14 Injectors of human capital 14 Industry leaders that are resetting benchmarks 14 Open innovators and collaborators 15 Large and small companies 15 From emerging and developed economies 15 High impact with minimal replacement of equipment 16 4. How Do the Lighthouses Achieve Impact at Scale? 17 Charting a course for scale: Two routes 17 Value drivers for impact at scale 18 Scale-up enablers 18 The current state of lighthouses 18 Three tools to scale Fourth Industrial Revolution technologies in production and overcome 19 pilot purgatory 5. Successful Deployment at Scale: A Close Look at Two Lighthouses 20 Procter & Gamble (P&G) Rakona, Czech Republic: Growth through cost leadership 20 Site history 20 An inclusive vision 20 Top five use-cases 20 Achievements, impact and the road ahead 21 Rold Cerro Maggiore, Italy: Fourth Industrial Revolution implementation in SME 22 Before and after: Transformational changes 22 Key enablers 22 Top five use-cases 22 Achievements, impact and the road ahead 23 6. Call to Action 24 Why act? 24 The Fourth Industrial Revolution is essential to breaking out of productivity stagnation 24 The world is under stress 24 The Fourth Industrial Revolution presents multifaceted opportunities and challenges 24 What needs to be done? 24 Augment, instead of replace, the operator 24 Invest in capability-building and lifelong learning 24 Diffuse technologies throughout geographical areas and include SMEs 25 Protect organizations and society through cybersecurity 25 Collaborate on open Fourth Industrial Revolution platforms and handle data carefully 25 Address the climate change challenge with Fourth Industrial Revolution technologies 25

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 3 Contents

Who needs to act? 25 Organizations with a lighthouse 25 Organizations without a lighthouse 25 Technology providers, start-ups and universities 25 An opportunity to form a new, global learning platform for the Fourth Industrial Revolution 25 Annex: A Look Inside the Lighthouses – Inside Perspectives 26 1. Value Drivers 26 Big data decision-making 26 Bosch Automotive in Wuxi, China 26 Christophe Chapdelaine, Senior Vice President Manufacturing and Quality Management, 27 Bosch Automotive Diesel Systems Wuxi Babur Ozden, Founder and CEO, Maana 27 Democratized technology on the shop floor 27 Natan Linder, CEO and Co-founder, Tulip Interfaces 27 Melonee Wise, CEO, Fetch Robotics 28 Agile working mode 28 Fast Radius in Chicago, USA 28 Lou Rassey, CEO, Fast Radius 29 Bosch Automotive in Wuxi, China 29 Minimal incremental cost to add use-cases 29 Microsoft’s manufacturing site in Suzhou, China 29 Darren Coil, Director of Business Strategy, Microsoft 30 Melonee Wise, CEO, Fetch Robotics 30 New business models 30 European consumer electronics manufacturer (company name undisclosed) 30 2. Scale-up Enablers 32 Fourth Industrial Revolution strategy and business case 32 BMW Group 32 Christian Patron, Head of Innovations and Digitalization in Production System, and Marcel 32 Eigner, Strategy Digitalization and Smart Data Analytics Production System, BMW Group IoT architecture built for scale-up 33 Hewlett Packard Enterprise 33 Chen Linchevski, Co-Founder and CEO, Precognize 33 Capability-building through acquiring new skills 34 Tata Steel in IJmuiden, Netherlands 34 Hans Fischer, CEO, Tata Steel in Europe 35 Daiane Piva, Improvement Consultant Energy Efficiency, Tata Steel 35 Workforce engagement 35 Schneider Electric in Le Vaudreuil, France 35 Lilian Aube, Le Vaudreuil Plant Union Representative, Schneider Electric 35 Sophie Grugier, Senior Vice President, Global Supply Chain Operations, Schneider Electric 36 Contributors 37 Project Team 37 Endnotes 38

4 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Foreword

Emitting powerful light that pierces fog and darkness, lighthouses are vital to maritime navigation. They serve as beacons and guides, ensuring safe passage for shipping. At the World Economic Forum’s Annual Meeting 2018 in Davos-Klosters, Switzerland, leaders from public and private organizations decided to seek out manufacturers in a broad range of industries who are leading the way in Fourth Industrial Revolution innovation. Connected by the World Economic Forum’s platform, these model factories – recognized as Fourth Industrial Revolution “lighthouses” – are beginning a unique learning journey that will benefit the production environment.

Manufacturing has experienced a decade of productivity stagnation and demand fragmentation; innovation is long overdue. Organizations that have taken Fourth Industrial Revolution innovation to Helena Leurent, scale beyond the pilot phase have experienced unprecedented increases in efficiency with minimal Head of Shaping displacement of workers. However, most companies appear to be stuck in “pilot purgatory”. the Future Widespread adoption of Fourth Industrial Revolution technology at scale, through the combined efforts of Advanced of companies and governments, can lead to a sizeable increase in global wealth production, benefiting Manufacturing people throughout society. and Production Member of The Fourth Industrial Revolution in manufacturing remains a top priority for many leaders of private the Executive and public organizations. It is having an enormous disruptive impact on value chains, industries and Committee, World business models. With one-third of the total economic value of the internet of things (IoT) coming Economic Forum from production,1 factories are the centre of gravity of the ongoing revolution. While manufacturing represents 16% of global GDP,2 manufacturing industries account for 64% of global R&D spend.3 However, there is potential for worker displacement if changes are not handled properly. Strengthened collaboration among stakeholders is needed to understand unexpected consequences and manage the transition.

“Lighthouses” are demonstrators of digital manufacturing and globalization 4.0, and exhibit all of the essential characteristics of the Fourth Industrial Revolution. Moreover, they confirm the hypothesis that they have the potential to generate new economic value, driven by improvements in the full spectrum of production value drivers: resource productivity and efficiency, agility and responsiveness, speed to market and customization to meet customer needs. Transforming existing production systems, innovating value chains and building new business models with disruptive potential for established Enno de Boer, businesses can create value. Partner and Global Leader Lighthouses highlight the global nature of production – for example, the lighthouse network includes Manufacturing, German-owned factories in China and a site in Ireland owned by a US company. This shows that McKinsey & innovation is equally relevant in all geographical areas and contexts, from sourcing basic materials to Company, USA process industries to advanced manufacturers addressing specialized needs. Furthermore, it proves that companies of all sizes, from established global blue-chips to small local businesses with fewer than 100 employees, can achieve radical Fourth Industrial Revolution innovation.

Lighthouses value collaboration and open their doors to thousands of visitors annually, recognizing that the benefits of this collaborative culture far surpass potential competitive threats. They can serve as an inspiration for defining a strategy, improving the skills of the workforce, collaborating with Fourth Industrial Revolution communities and managing changes from the shop floor throughout the value chain. While they vary in size, industry and geographic location, lighthouses embody nine common distinguishing characteristics. This white paper explores findings derived from these characteristics and calls on industry and government leaders to act. Governments, universities, technology providers and companies are encouraged to use this unique network to navigate and accelerate the inclusive diffusion of technology.

The Fourth Industrial Revolution in manufacturing presents the next engine of economic growth, ushering in opportunities to learn and embed values in a way that past revolutions could not. The adoption of technology, guided by an inclusive vision for a better world, can yield a stronger, cleaner, global society.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 5 Executive summary

Many companies are piloting Fourth Industrial Revolution –– These sites represent both large and small companies. initiatives in manufacturing, but few have managed Fourth Industrial Revolution innovation is accessible to integrate Fourth Industrial Revolution technologies not only to large organizations but also to small- and at scale to realize significant economic and financial medium-sized enterprises (SMEs). benefits. The World Economic Forum, in collaboration with McKinsey & Company, scanned more than 1,000 –– Lighthouses can be found in emerging and developed leading manufacturers. Subsequent outreach enabled economies. Fourth Industrial Revolution technologies visits to the most advanced sites and identification of the are also paying off in manufacturing environments that few factories that are true guiding lights in the context of benefit from low labour costs. Fourth Industrial Revolution production: lighthouses. –– Lighthouses achieve high impact with minimal This select group of manufacturing sites represent the replacement of equipment. Most were created by leading edge of adopting technology at scale. These sites transforming existing brownfield operations. Optimizing serve as beacons for the world, exemplifying the type existing infrastructure and augmenting it with new of production approach that can drive the next engine machinery can deliver many benefits. of global economic growth. They demonstrate how forward-thinking engagement of technology can create Lighthouses achieve impact at scale in different ways. The a better, cleaner world through new levels of efficiency Forum has identified two principal routes to scale by which in manufacturing. Likewise, they illustrate how Fourth manufacturing pioneers can chart their course. These routes Industrial Revolution technology at scale can transform are not mutually exclusive; rather, they can complement the nature of work itself by engaging and improving the each other: skills of human workers with minimal displacement. –– Innovate the production system: expand competitive Three technological megatrends are the principal drivers advantage through operational excellence. of this transformation in production: connectivity, intelligence and flexible automation. Front-runner –– Innovate the end-to-end value chain: create new production sites that have embraced these megatrends businesses by changing the economics of operations. at scale have seen a step change in performance. These “lighthouse factories” have taken Fourth Industrial Lighthouses have employed five value drivers to create Revolution technology from pilots to integration at scale, impact at scale using Fourth Industrial Revolution thus escaping the inertia of “pilot purgatory”, in which technologies. They demonstrate four distinct capabilities many organizations remain. that serve as scale-up enablers. The annex of this white paper provides perspectives from lighthouses that exemplify Lighthouses serve as real-world evidence to dispel these value drivers or enablers. widespread myths and misunderstandings posing obstacles to the adoption of innovative technology at The value drivers are: scale. These beacons shed light on the characteristics, differentiators and success factors that realize optimal –– Big data decision-making scaling. –– Democratized technology on the shop floor –– Agile working models –– Lighthouses are injectors of human capital. Rather –– Minimal incremental cost to add use-cases than replacing operators with machines, lighthouses –– New business models are transforming work to make it less repetitive, more interesting, diversified and productive. The four scale-up enablers are:

–– Lighthouses are industry leaders resetting benchmarks. –– Fourth Industrial Revolution strategy and business case They have moved beyond the continuous improvement –– IoT architecture built for scale-up efforts that have characterized factories for decades, –– Capability-building through acquiring new skills instead making a change that resets benchmarks. –– Workforce engagement

–– They are open innovators and collaborators. They In addition to the perspectives offered in the annex, this engage a trisector innovation system comprising white paper offers an in-depth look at two lighthouses business, government and the social sector, including operated by two companies that differ substantially in size. academia. The first, Procter & Gamble’s Rakona plant, represents

6 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing a large multinational. The other, Rold Cerro Maggiore, is operated by a small SME headquartered in Italy. The story of change at each of these sites offers valuable insights into the broad transformation occurring in the manufacturing environment.

The World Economic Forum issues a call to action to break out of productivity stagnation and address the significant challenges – such as climate change, resource scarcity and an ageing workforce – the world is facing. The Forum suggests six principle-based actions to ensure the Fourth Industrial Revolution in manufacturing delivers the maximum positive benefit for society:

–– Augment, instead of replace, the operator. –– Invest in capability-building and lifelong learning. –– Diffuse technologies throughout geographical areas and include SMEs. –– Protect organizations and society through cybersecurity. –– Collaborate on open Fourth Industrial Revolution platforms and handle data carefully. –– Address the challenge of climate change using Fourth Industrial Revolution technologies.

The responsibility for action lies with both the public and private sectors, and the Forum encourages them to engage the network of lighthouses to be part of a unique learning journey. By engaging the findings and example of the lighthouse network, organizations and governments can realize the great potential that lies with the Fourth Industrial Revolution in production. Coupling this knowledge and technology with a commitment to environmental stewardship and social responsibility can play a role in driving the next economic growth engine towards a brighter future for all of society.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 7 1. Lighthouses: Sites Embracing the Megatrends of the Fourth Industrial Revolution

Seeing the light: A radical leap forward for thus realizing significant financial and operational benefits. Fourth Industrial Revolution front runners Qualification as a lighthouse requires meeting high standards in four categories: significant impact achieved; successful integration of several use-cases*; a scalable technology Three technological megatrends are the principal drivers of platform; and strong performance on critical enablers such a Fourth Industrial Revolution transformation in production: as managing change, building capability and collaborating connectivity, intelligence and flexible automation (Figure 1). with a Fourth Industrial Revolution community. Lighthouses have embraced these megatrends and the results are compelling. Identification of lighthouses followed a comprehensive Adoption of Fourth Industrial Revolution technologies at scanning of more than 1,000 leading manufacturers in all scale can have a radical impact upon organizations. A close industries and geographical areas. Contact with more than look at one of these three megatrends makes it clear just 150 of the most advanced companies yielded proposals how powerful this effect can be. For example, a McKinsey from many companies’ most sophisticated sites to be Global Institute analysis projects a remarkable gap between considered lighthouses. Site visits were carried out to companies that adopt and absorb artificial intelligence (AI) document findings, which were then presented to a Fourth within the first five to seven years and those that follow or Industrial Revolution expert panel of members from private lag behind. The analysis suggests that AI adoption “front organizations, universities and technology pioneers. This runners” can anticipate a cumulative 122% cash-flow panel selected 16 lighthouses and recognized them as the change, while “followers” will see a significantly lower impact most advanced production sites, including factories operated of only 10% cash-flow change (Figure 2). by Bayer, BMW, Bosch, Danfoss, Fast Radius with UPS, This shows the importance of early adoption of technology, Foxconn, Haier, Johnson & Johnson, Phoenix Contact, since companies that wait risk missing a large share of the Procter & Gamble, Rold, Sandvik Coromant, Saudi Aramco, benefits. Company leaders who move to implementation Schneider Electric, Siemens and Tata Steel (Figure 3). early, rather than waiting for decreased technology and Myths and misunderstandings pose obstacles to the transition costs, will realize the greatest benefit. Thus, the adoption of the Fourth Industrial Revolution. Dispelling largest factor here is related to the competitive advantage these is vital to understanding how accessible the revolution of front runners, which by far outweighs the higher transition is to organizations of all kinds. With visionary leadership, costs and capital expenditure related to the early adoption.4 companies large and small can embark on an innovation journey and realize the benefits of digital transformation. The Identifying lighthouses Forum’s analysis of lighthouses has provided meaningful insights that clarify the path to successful adoption at scale The lighthouses of the Fourth Industrial Revolution are of the Fourth Industrial Revolution. These beacons of light the factories that have taken Fourth Industrial Revolution cut through the fog and provide clarity to organizations technology from pilot schemes to integration at scale, throughout the manufacturing environment.

Figure 1: Key technology megatrends transforming production

Creates links between discrete network nodes, increasing visibility Connectivity

Automates event Incorporates recognition and response mechanisms, translation for Flexible automation and remote Intelligence decision-making automation movement

* Use-case: application of one or multiple Fourth Industrial Revolution technologies in a real production environment to address a business problem

8 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Figure 2: Economic gains by AI adoption front runners, followers and laggards5

Relative changes in cash flow by AI adoption cohort Front-runner breakdown % SIMULATION % change per cohort, cumulative change per cohort atMdfe 1.221 0:7 .Erp tnad Time Standard Europe W. 09:17 14.12.2018 Modified Last -18 130 Front- 120 122 runners 135 -77 (absorbing 110 within first 100 5 to 7 122 years) 82 90 80 70 Economy- Output Transition Capital Total wide gain/loss costs expenditure 60 output from/to 50 gains peers rne 1/421 91 MIdaSadr Time Standard India PM 9:13 11/14/2018 Printed 40 30 Laggard breakdown % change per cohort 20 Follower (absorbing 10 10 by 2030) 11 0 Laggard 49 23 -10 (do not absorb -20 19 -23 by 2030) 4 -30 Economy- Output Transition Capital Total 2017 20 25 2030 wide gain/loss costs expenditure output from/to gains peers

The increasing importance of data and interconnectivity in manufacturing changes the dynamics of technology adoption: Waiting for cheaper and better technology does not pay off, since frontrunners are expected to capture largest benefits.

1 Note: Numbers are simulated figures to provide directional perspectives rather than forecasts. Source: McKinsey Global Institute analysis

Figure 3: Global network of lighthouse factories

Lighthouses Phoenix Contact Industrial Automation, DE

Sandvik Coromant Industrial Tools, SE

Procter & Gamble Tata Steel Consumer goods, CZ Steel Products, NL Siemens Industrial Automation Products, CN Danfoss BMW Group Johnson & Johnson Industrial Equipment, CN Automotive, DE DePuy Synthes Medical Devices, IR Fast Radius with UPS Haier Additive Manufacturing, US Home Appliances, CN

Bosch Bayer Automotive, CN Schneider Electric Division Electrical Pharmaceuticals, IT Components, FR Foxconn Industrial Internet Saudi Aramco Electronics, CN Gas Treatment, SA Rold Electrical Components, IT

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 9 2. Overview of the Global Lighthouse Network

Site Change story Site Change story Site Change story SiteBayer, Division Pharmaceuticals in ChangeFactoryChange faced story story increasing demand and volatile OEE¹ – Bayer,Site Division Pharmaceuticals in FactoryChange faced story increasing demand and volatile OEE¹ – Garbagnate,Bayer, Division Italy Pharmaceuticals in implementedFactory faced transformation increasing demand with focusedand volatile support OEE¹ – Bayer,Garbagnate, DivisionDivision Italy PharmaceuticalsPharmaceuticals in in FactoryimplementedFactory faced faced transformation increasing increasing demand demand with focusedand and volatile volatile support OEE¹ OEE¹ – – Garbagnate,Bayer, Division Italy Pharmaceuticals in implementedFactory faced transformation increasing demand with focusedand volatile support OEE¹ – Garbagnate, ItalyItaly implementedimplemented transformation transformation with with focused focused support support Garbagnate, Italy implemented transformation with focused support

Highly advanced factory with lean processes leverages BMW in Regensburg, Germany Highly advanced factory with lean processes leverages BMW in Regensburg, Germany digitalHighly manufacturingadvanced factory to reach with lean the nextprocesses performance leverages level BMW in Regensburg, Germany HighlydigitalHighly manufacturingadvanced advanced factory factory to reach with with lean the lean nextprocesses processes performance leverages leverages level BMW inin Regensburg,Regensburg, Germany Germany digitalHighly manufacturingadvanced factory to reach with lean the nextprocesses performance leverages level BMW in Regensburg, Germany digital manufacturing to reach the next performance level digitaldigital manufacturing manufacturing to toreach reach the the next next performance performance level level

Implemented 30+ use cases to meet 200% increase in Bosch Automotive in Wuxi, China Implemented 30+ use cases to meet 200% increase in Bosch Automotive in Wuxi, China Implementedcustomer demand 30+ use cases to meet 200% increase in Bosch Automotive in Wuxi, China Implementedcustomer demand 30+ use cases to meet 200% increase in Bosch Automotive in Wuxi, China customerImplementedImplemented demand 30+ 30+ use use cases cases to meetto meet 200% 200% increase increase in in Bosch AutomotiveAutomotive in in Wuxi, Wuxi, China China customer demand Bosch Automotive in Wuxi, China customercustomer demand demand

Fourth Industrial Revolution technology use cases target Danfoss in Tianjin, China Fourth Industrial Revolution technology use cases target Danfoss in Tianjin, China qualityFourth improvementIndustrial Revolution and cost technology reduction use to meet cases customer target Danfoss in Tianjin, China qualityFourth improvementIndustrial Revolution and cost technology reduction use to meet cases customer target Danfoss in Tianjin, China qualityexpectationsFourthFourth improvementIndustrial Industrial Revolution Revolution and cost technology reductiontechnology use to usemeet cases cases customer target target Danfoss inin Tianjin,Tianjin, China China qualityexpectations improvement and cost reduction to meet customer expectationsqualityquality improvement improvement and and cost cost reduction reduction to meetto meet customer customer expectations expectationsexpectations

Complete organization is transforming from an electronic Foxconn Industrial Internet in Complete organization is transforming from an electronic Foxconn Industrial Internet in manufacturingComplete organization services iscompany transforming into an from industrial an electronic internet Shenzhen,Foxconn Industrial China Internet in manufacturingComplete organization services iscompany transforming into an from industrial an electronic internet FoxconnShenzhen, Industrial China Internet in companymanufacturingComplete organization services iscompany transforming into an from industrial an electronic internet Shenzhen,Foxconn Industrial China Internet in manufacturingcompanyComplete organization services company is transforming into an industrial from an electronicinternet Shenzhen,Foxconn IndustrialIndustrial China Internet Internet in in companymanufacturing services company into an industrial internet Shenzhen, China companymanufacturing services company into an industrial internet Shenzhen, China company Shenzhen, China company

Developed digital manufacturing transformation to meet Haier in Qingdao, China Developed digital manufacturing transformation to meet Haier in Qingdao, China Developed digital manufacturing transformation to meet Haier in Qingdao, China Developedconsumer demand digital manufacturing and innovate transformationa new business to model meet Haier in Qingdao, China Developedconsumer demand digital manufacturing and innovate transformationa new business to model meet Haier in Qingdao, China consumerDeveloped demand digital manufacturing and innovate transformationa new business to model meet Haier in Qingdao, China consumerDeveloped demand digital andmanufacturing innovate a new transformation business model to meet Haier in Qingdao, China consumer demand and innovate a new business model consumer demand and innovate a new business model

Johnson & Johnson DePuy Synthes Global innovation center focused on material science and Johnson & Johnson DePuy Synthes Global innovation center focused on material science and Johnsonin Cork, Ireland & Johnson DePuy Synthes Globaltechnology innovation innovation, center with focused in-house on materialtechnical science capability and Johnsonin Cork, Ireland & Johnson DePuy Synthes technologyGlobal innovation innovation, center with focused in-house on materialtechnical science capability and inJohnson Cork, Ireland & Johnson DePuy Synthes technologyandGlobal knowledge innovation innovation, development center with focused in-house on materialtechnical science capability and in Cork, Ireland technologyand knowledge innovation, development with in-house technical capability inJohnson Cork, Ireland & Johnson DePuy Synthes andtechnologyGlobal knowledge innovation innovation, development center with focusedin-house on technical material capability science and and knowledge development in Cork, Ireland andtechnology knowledge innovation, development with in-house technical capability and knowledge development

Phoenix Contact in Bad Pyrmont Market demand shift towards higher level of customization Phoenix Contact in Bad Pyrmont Market demand shift towards higher level of customization Phoenixand Blomberg, Contact Germany in Bad Pyrmont Marketmet by deploymentdemand shift of towards various higherdigital manufacturinglevel of customization use cases Phoenixand Blomberg, Contact Germany in Bad Pyrmont Marketmet by deploymentdemand shift of towards various higherdigital manufacturinglevel of customization use cases andPhoenix Blomberg, Contact Germany in Bad Pyrmont metMarket by deploymentdemand shift of towards various higherdigital manufacturinglevel of customization use cases and Blomberg, Germany met by deployment of various digital manufacturing use cases andPhoenix Blomberg, Contact Germany in Bad Pyrmont metMarket by deployment demand shift of various towards digital higher manufacturing level of customization use cases and Blomberg, Germany met by deployment of various digital manufacturing use cases

Source: Lighthouse sites 1 Overall Equipment Effectiveness; 2 Full-Time Equivalent; 3 Business to Consumer; 4 Virtual Reality

10 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Top 5 use cases Impact Highlight Digital performance management 35% OEE A group-wide strategic initiative aims at digitizing Mixed reality change overs 30% Change over time the customer experience Advanced analytics on deviations 80% Deviations and internal operations, as well as developing new Advanced analytics on breakdowns 50% Breakdown business models Integrated people and asset scheduling 75% Batches per FTE² Data analytics and predictive maintenance 25% Unplanned downtime of press Strategy focused on effectiveness, the right Smart autonomous logistics transports 35% Logistics cost mindset and easy access Smart maintenance and assistance 5% Rework to improve quality, cost and productivity Collaborative robotics and automation 5% Efficiency in assembly IoT enabled machine condition monitoring >90% Benchmark OEE Big data from connected machines used to improve Digital inventory management >10% Total inventory operations, and agile Digital value stream mapping 15% Unit output proofs-of-concept support Digital tool life-cycle management >10% Tool inventory rapid deployment of new use cases Real time labor processing and time tracking >15% Performance loss Digital operator assistant system 50% Cost of scrap Big data from connected machines used to improve AI-enabled quality management system 57% Customer complaints operations, and agile Real-time machining quality control 7% Machining cycle time reduction proofs-of-concept support rapid deployment of new Flexible automation assembly line 30% Labor productivity use cases Digital R&D and engineering >40% Design iteration cycle time Cloud-based platform connecting machines NA Transparency Clear top-down strategy, implementation enabled by Lights-out manufacturing 31% Units per hour dedicated team and focus Real-time monitoring and prediction 60% Unexpected breakdowns on capability building Automated testing using artificial intelligence 50% Misjudgement IoT-enabled nozzle status tracking 25x Lifespan of nozzles Mass customization & B2C³ online ordering 33% Lead time Innovated new business model with web-based Real-time operator performance ranking 64% Labor productivity B2C sales channel for Digital quality management system 21% Defects per million configuration and ordering Digital manufacturing performance NA OEE increased of air conditioners Digital product after sales 50% Customer, maintenance staff OEE real-time monitoring of critical assets 5% Asset utilization Dedicated Fourth Industrial Revolution space serves as Additive manufacturing (3D printing) 25% Cost of goods sold in-house testing ground for Autonomous process optimization 10% Scrap the agile testing and deployment of new use cases VR4 training and design tool 5x Safety information retention Collaborative Robotics 25% Labor efficiency Digital replicas of physical assets NA Highly automated lot size 1 line Innovated a new business model based on a in-house Digitized production performance tools 30% Production time additive manufacturing Mixed reality maintenance NA Time and errors start-up which serves both Building energy management ~7.5% Energy costs internal as well as external customers Additive manufacturing (3D printing) 60% Cycle time

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 11 Site Change story Site ChangeChange story story Site Change story SiteProcter & Gamble in Rakona, Czech ChangingChange story product mix and desire to remain operational over SiteProcter && GambleGamble in in Rakona, Rakona, Czech Czech ChangingChangeChanging story product product mix mix and and desire desire to remainto remain operational operational over over ProcterRepublic & Gamble in Rakona, Czech theChanging next 140 product years mix and desire to remain operational over RepublicProcter & Gamble in Rakona, Czech theChangingthe next next 140 product140 years years mix and desire to remain operational over RepublicProcter & Gamble in Rakona, Czech theChanging next 140 product years mix and desire to remain operational over Republic the next 140 years Republic the next 140 years

Leverage digital manufacturing to remain competitive and Rold in Cerro Maggiore, Italy LeverageLeverage digital digital manufacturing manufacturing to remainto remain competitive competitive and and Rold inin CerroCerro Maggiore,Maggiore, Italy Italy Leverageincrease production digital manufacturing volume to remain competitive and Rold in Cerro Maggiore, Italy increaseLeverageincrease production digital production manufacturing volume volume to remain competitive and Rold in Cerro Maggiore, Italy increaseLeverage production digital manufacturing volume to remain competitive and Rold in Cerro Maggiore, Italy increase production volume increase production volume

Digital manufacturing and smart automation enable the site Sandvik Coromant in Gimo, DigitalDigital manufacturing manufacturing and and smart smart automation automation enable enable the thesite site Sandvik Coromant in Gimo, Digitalto produce manufacturing a large volume and smart of cutting automation tools in enablesmallest the lot site SandvikSweden CoromantCoromant in in Gimo, Gimo, Digitalto produce manufacturing a large volume and smart of cutting automation tools in enablesmallest the lot site SwedenSandvik Coromant in Gimo, Digitaltosizesto produce produce at manufacturing a competitive a largea large volume volume andcost smart of cuttingof cuttingautomation tools tools in enablesmallest in smallest the lot site lot SwedenSandvik Coromant in Gimo, tosizes produce at a competitive a large volume cost of cutting tools in smallest lot Sweden tosizessizes produce at at a competitivea acompetitive large volume cost cost of cutting tools in smallest lot Sweden sizes at a competitive cost sizes at a competitive cost

Saudi Aramco in Uthmaniya, Saudi The site is leveraging digital technologies to introduce a Saudi Aramco in Uthmaniya, Saudi The site is leveraging digital technologies to introduce a ArabiaSaudi Aramco in Uthmaniya, Saudi moreThe site efficient, is leveraging greener digital and safertechnologies way of working to introduce a ArabiaSaudi Aramco Aramco inin Uthmaniya, Uthmaniya, Saudi Saudi moreTheThe site efficient,site is isleveraging leveraging greener digital and digital safertechnologies technologies way of working to introduceto introduce a a ArabiaSaudi Aramco in Uthmaniya, Saudi moreThe site efficient, is leveraging greener digital and safertechnologies way of working to introduce a Arabia moremore efficient, efficient, greener greener and and safer safer way way of workingof working Arabia more efficient, greener and safer way of working

50 year old plant that recognized the need to stay price Schneider Electric in Le 50 year old plant that recognized the need to stay price Schneider Electric in Le competitive50 year old plantfor the that next recognized 50 years throughthe need to stay price SchneiderVaudreuil, FranceElectric in Le competitive5050 year year old old plantfor plant the that nextthat recognized 50recognized years throughthe the need need to stayto stay price price Vaudreuil,Schneider FranceElectricElectric in in Le Le competitivedeployment50 year old plantforof digitalthe that next toolsrecognized 50 years throughthe need to stay price Vaudreuil,Schneider FranceElectric in Le deploymentcompetitivecompetitive forof for digitalthe the next toolsnext 50 50 years years through through Vaudreuil, FranceFrance deploymentcompetitive forof digitalthe next tools 50 years through Vaudreuil, France deploymentdeployment of ofdigital digital tools tools deployment of digital tools

Siemens Industrial Automation Consumer demand growth required digital transformation to Siemens Industrial Automation Consumer demand growth required digital transformation to SiemensProducts Industrialin Chengdu, Automation China improveConsumer quality demand performance growth required digital transformation to SiemensProducts Industrialin Chengdu, Automation China improveConsumer quality demand performance growth required digital transformation to SiemensProducts IndustrialIndustrialin Chengdu, Automation Automation China improveConsumerConsumer quality demand demand performance growth growth required required digital digital transformation transformation to to Products in Chengdu, China improve quality performance Products inin Chengdu,Chengdu, China China improveimprove quality quality performance performance

Tata Steel in IJmuiden, the End-to-end at scale transformation with clear digital roadmap Tata Steel in IJmuiden, the End-to-end at scale transformation with clear digital roadmap NetherlandsTata Steel in IJmuiden, the toEnd-to-end improve EBITDA¹ at scale transformation with clear digital roadmap TataNetherlands Steel in IJmuiden, the toEnd-to-end improve EBITDA¹ at scale transformation with clear digital roadmap TataNetherlands Steel inin IJmuiden,IJmuiden, the the End-to-endtoEnd-to-end improve EBITDA¹ at atscale scale transformation transformation with with clear clear digital digital roadmap roadmap Netherlands to improve EBITDA¹ Netherlands toto improve improve EBITDA¹ EBITDA¹

Fast Radius with UPS in Chicago, Greenfield site to support new, Fourth Industrial Revolution Fast Radius with UPS in Chicago, Greenfield site to support new, Fourth Industrial Revolution UnitedFast Radius States with UPS in Chicago, technology-enabledGreenfield site to support business new, models Fourth Industrial Revolution UnitedFast Radius States with UPS in Chicago, technology-enabledGreenfield site to support business new, models Fourth Industrial Revolution UnitedFast Radius States withwith UPS UPS in in Chicago, Chicago, technology-enabledGreenfieldGreenfield site site to tosupport support business new, new, models Fourth Fourth Industrial Industrial Revolution Revolution United States technology-enabled business models United StatesStates technology-enabledtechnology-enabled business business models models

Source: Lighthouse sites 1 Earnings Before Interest, Tax, Depreciation and Amortization; 2 Enterprise Resource Planning; 3 Manufacturing Execution System; 4 Product Lifecycle Management; 5 Virtual Reality; 6 Advanced Analytics; 7 Sales and Operations Planning

12 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Top 5 use cases Impact Highlight

TopIn-process 5 use casesquality control ImpactNA Scrap HighlightCapability-building represents a key element of Capability-building In-processAutomatic changesquality control to products on prod. line 50%NA ScrapChange over time the digital transformation, represents a key element of with a «digital college» and AutomaticEnd-to-end changes supply chain to products synchronization on prod. line 50%35% ChangeInventory over time the digital transformation, «SMART Lab» leveraged to with a «digital college» and DigitalEnd-to-end direction supply setting chain synchronization NA35% ReliabilityInventory and OEE upskill employees «SMART Lab» leveraged to DigitalModelling direction and simulation setting NA ReliabilityTesting time and OEE upskill employees ModellingMachine alarm and simulationaggregation NA TestingReaction time time for alarms Collaborations with universities support skill- 11% OEE Collaborations with MachineDigital dashboards alarm aggregation to monitor OEE NA Reaction time for alarms building and dedicated universities support skill- Sensor-based KPI reporting 11% OEE events ensure a high level Digital dashboards to monitor OEE NA Transparency of machine status building and dedicated of workforce engagement Sensor-basedCost modeling KPI reporting NA TransparencyAccuracy of cost of machinecalculation status events ensure a high level of workforce engagement CostAdditive modeling manufacturing (3D printing) NA AccuracyTime to market of cost calculation AdditiveParametric manufacturing design and manufacturing(3D printing) NA41% ImprovedTime to market productivity High level of operator involvement in High level of operator ParametricDigital thread design through and production manufacturing process 41%38% EngineeringImproved productivity productivity development of new use involvement in cases DigitalBusiness thread intelligence through platform production process 38%NA OperatorImprovedQuality of productivityproductivitydecisions development of new use BusinessReal-time intelligenceprocess control platform system NA QualityMachine of OEE decisions cases Real-timeUnmanned process vehicles control for inspection system NA5% MachineEnvironmental OEE waste Collaborated with universities to develop a Collaborated with UnmannedAsset predictive vehicles analytics for inspection 5%2% EnvironmentalEnergy efficiency waste dedicated program for universities to develop a specialists in data science Asset Performancepredictive analytics Management 2%3% EnergyReliability efficiency dedicated program for and robotics AssetWearables Performance for operators Management 3%10% ReliabilityWorkforce productivity specialists in data science and robotics WearablesAnalytics and for artificialoperators intelligence center 10%12% WorkforceMaintenance productivity cost PredictiveAnalytics and maintenance artificial intelligence through IoT center 12%7% OEEMaintenance cost Workforce involved in the digital transformation from Workforce involved in the PredictiveMixed reality maintenance for maintenance through work IoT 7%20% OEETime to diagnosis/repair the beginning, leveraging digital transformation from digital technologies such as EnergyMixed reality management for maintenance through IoTwork 20%10% TimeEnergy to costsdiagnosis/repair the beginning, leveraging virtual reality to digital technologies such as LeanEnergy digitization management through IoT NA10% TimeEnergy for costs lean analysis communicate vision virtual reality to LeanSmart digitization supply chain- Automated Guided Vehicles NA80% Time for milklean runsanalysis communicate vision DigitalSmart performancesupply chain- management Automated Guided Vehicles 80%40% TimeDefects for permilk million runs A scalable IoT architecture supports the 45A scalable IoT DigitalIntegration performance of ERP²/MES³/PLM management 40%100% DefectsC/O quality per millioncompliance deployment of new use architecture supports the 45cases 3DIntegration Simulation of ERP²/MES³/PLM for Production Line 100%20% C/OCycle quality time compliance deployment of new use 3DDigital Simulation Assistant for System Production for Operators Line 20%100% CycleIssues time from customer claims cases DigitalImplementation Assistant ofSystem Automation for Operators 100%~45% LaborIssues avoidancefrom customer claims ImplementationAA6 -based image of recognition Automation ~45%50% LaborCost of avoidance yield losses A digital academy has trained more than 200 6 NA Cost of raw materials A digital academy has AAAA-based -based raw image material recognition selection 50% Cost of yield losses employees from all levels of trained more than 200 NA80% CostQuality of rejectraw materials rate the organization in data AA-based rawproduct material quality selection optimization employees from all levels of analytics and digital tools PredictionAA-based productof weld qualityquality optimization 80%50% QualityReduction reject of re-weldsrate the organization in data analytics and digital tools S&OPPrediction7 planning of weld based quality on artificial Intelligence 50% ReductionLate deliveries of re-welds RapidS&OP 7design planning prototyping based on through artificial 3DIntelligence printing 50%89% LateTime deliveriesto market An agile working mode supports the 95% First pass yield An agile working mode RapidAdvanced design analytics prototyping platform through 3D printing 89% Time to market implementation of new use supports the Digital twins – factory network NA95% LeadFirst pass time yieldand cost cases as well as the Advanced analytics platform implementation of new use improvement of products 3DDigital scanning twins –for factory quality network NA LeadQuality time control and costlabor content cases as well as the improvement of products 3D scanning for quality NA Quality control labor content

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 13 3. Understanding Lighthouses: Characteristics, Differentiators and Success Factors

Lighthouse characteristics different Fourth Industrial Revolution use-cases to transform their operations. They have, on average, 10–15 use-cases Injectors of human capital at an advanced stage and are working on the development of an additional 10–15. Accordingly, lighthouses are Contrary to widespread concerns about worker resetting industry benchmarks for operational and financial displacement, the lighthouse factories are not deploying key performance indicators (KPIs). Some lighthouses even Fourth Industrial Revolution technology to replace operators. outperformed their internal expectations by a factor of two. A McKinsey report suggests that fewer than 5% of With this transformative approach, lighthouses radically alter occupations consist of activities that are 100% automatable their operations and achieve a step change in performance with today’s technology, while 62% of occupations have at increase – thereafter, they can engage in accelerated least 30% of automatable tasks6 (Figure 4). continuous improvement efforts, using new Fourth Industrial Consequently, employees in production enjoy a working Revolution technologies and capabilities (Figure 5). routine that is becoming less repetitive and more interesting, diversified and productive. Employees at all career stages Open innovators and collaborators enjoy new tasks and responsibilities that demand the human skill of dynamic decision-making in a changing environment. The lighthouses demonstrate that the Fourth Industrial Revolution journey need not be solitary – beacons can Industry leaders that are resetting benchmarks guide the way. Indeed, lighthouses are part of an innovation environment that involves universities, start-ups and other The Fourth Industrial Revolution differs from the continuous technology providers. Lighthouses have worked through improvement efforts that have characterized factories for the process of discerning amid thousands of technology decades. It is not incremental; rather, it involves a step providers – they have narrowed the options to a system change – it is resetting benchmarks. Lighthouses employ with which they collaborate closely and develop their Fourth Industrial Revolution solutions on the shop floor. atMdfe 1.221 0:7 .Erp tnad Time Standard Europe W. 09:17 14.12.2018 Modified Last Figure 4: Automation potential of manual activities7

Share of roles 100% = 820 roles

62% of occupations have at least 30% of 100 their activities that are automatable 91

73 Time Standard India PM 9:13 11/14/2018 Printed <5% of occupations consist of activities that are 100% 62 automatable 51 42 34 26 18 8 1 100 >90 >80 >70 >60 >50 >40 >30 >20 >10 >0 Technical automation potential, in percent

Source: McKinsey & Company

3

14 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Figure 5: Impact of Fourth Industrial Revolution use-cases on select KPIs in lighthouse factories

KPIs improvements Impact range observed

Factory output increase 10-200%

Productivity increase 5-160%

OEE increase 3-50% Productivity 5-90% Quality cost reduction 5-40% Product cost reduction

Energy efficiency 2-50%

Inventory reduction 10-90%

Lead time reduction 10-90% Agility Time to market reduction 30-90%

Change-over shortening 30-70% 50-90% Customization Lot size reduction

Source: World Economic Forum and McKinsey & Company lighthouse site analysis

In an increasingly digital world, companies are justified importance of on-boarding SMEs onto the journey of Fourth in being concerned about their proprietary systems and Industrial Revolution can be recognized in two contexts. technology. However, lighthouses recognize that the First, from a government perspective, the data suggests that benefits of transparency and growth opportunities far SMEs account for the largest share of jobs. For example, surpass the potential for competitive threats. By developing 60–70% of jobs in most OECD countries are in SMEs.8 good IP and cybersecurity policies and protocols, SMEs, furthermore, are an essential part of the supply chain. lighthouses have managed to maintain effective security to Digitalization among SMEs is vital to optimizing the supply mitigate risk while enabling collaboration. Not only do they chain for organizations of all sizes. open their doors to close partners, but they also welcome thousands of visitors per year. From emerging and developed economies

Large and small companies Additionally, it is apparent that access to Fourth Industrial Revolution technologies is not the exclusive domain of Notably, Fourth Industrial Revolution innovation is accessible developed economies. In fact, China is one of the leaders, not only to large organizations but also to SMEs, which can with a high number of lighthouses, and other lighthouses are achieve transformative impact by focusing on pragmatic located in Eastern Europe. This shows that other financial solutions that do not require large investments. The and operational benefits are more relevant than labour-cost reduction.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 15 High impact with minimal replacement of equipment benefits associated with the Fourth Industrial Revolution can be realized by connecting and optimizing existing Despite the misconception that legacy equipment and older infrastructure and augmenting it with select new machinery. facilities create a barrier to Fourth Industrial Revolution In contrast with the First and Third Industrial Revolutions, the innovation, most of these lighthouses were in fact created Fourth Industrial Revolution will have relatively high impact by transforming existing brownfield operations. Many of the with comparatively little equipment replacement (Figure 6).

Figure 6: Need for replacement of equipment for each industrial revolution atMdfe 1.221 0:7 .Erp tnad Time Standard Europe W. 09:17 14.12.2018 Modified Last 4th revolution 1st revolution 2nd revolution 3rd revolution Cyberphysical Water/Steam Electricity Automation systems rne 1/421 91 MIdaSadr Time Standard India PM 9:13 11/14/2018 Printed

Replacement of equipment Percent of installed base

100 ~10-20 ~80-90 ~40-50 Replacement Little replacement, High level of Existing of as tooling replacement as machines are complete equipment could tooling connected, only loom be kept, only equipment was partial necessary conveyor belt replaced by replacement of needed machines equipment

Source: Statistisches Bundesamt; Deutsche Bundesbank; Prognos; Thomas Nipperdey; McKinsey & Company 5

16 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 4. How Do the Lighthouses Achieve Impact at Scale?

These lighthouses have overcome typical challenges faced can chart their course. These routes are not mutually by companies, such as engaging in too many proofs- exclusive; they can complement one other as companies of-concept, scaling too slowly, lacking an integrated navigate the journey to scale (Figure 7): business case for Fourth Industrial Revolution technologies, implementing too many isolated solutions and creating –– Production system innovation. Companies expand countless data silos. How did they overcome these their competitive advantage through operational myriad typical challenges to achieve transformational excellence. They aim to optimize their production impact and agile, continuous improvement? Amid a range system, increasing their operations’ productivity and of characteristics and qualities, we observed that the quality performance. Typically, they start to innovate in lighthouses follow two distinct yet complimentary routes one or a few manufacturing sites and then roll out from to scale, and that five specific value-creation differentiators there. and four capabilities stand out. These routes, differentiators and capabilities are introduced here, but the annex of this –– Innovation in the end-to-end value chain. Companies white paper will provide an in-depth look at examples from create new businesses by changing the economics advanced factories. of operations. They innovate throughout the value chain, offering new or improved value propositions to Charting a course for scale: Two routes customers by way of new products, new services, more customization, smaller lot sizes or significantly shorter The lighthouses prove that there is more than one way to lead times. Companies stay focused on innovation embrace the Fourth Industrial Revolution: there are two and transforming one value chain first, then scale their principal “routes to scale” by which manufacturing pioneers findings and capabilities to other parts of the business.

Figure 7: Two methods of strategic business value generation from new disruptive technologies atMdfe 1.221 0:7 .Erp tnad Time Standard Europe W. 09:17 14.12.2018 Modified Last

New disruptive technologies Strategic business value

Phoenix Contact in Bad Pyrmont: Lot-size-one production at cost of mass production, connected Supply chain feedback to web-based configurator Automated production scheduling Yield optimization Innovate the Haier in Qingdao: Reduced lead time by 33% to Digital quality control customer enable a new B2C business channel based on mass customization

connected Time Standard India PM 9:13 11/14/2018 Printed Supply chain visibility Digital Adaptive machining end-to-end wearables standard work standard Fast Radius with UPS in Chicago: Moving from Advanced analytics value chain storing spare parts to 3D-printing on demand cybersecurity Digital thread Part AGVs Digital twin traceability Robotics Smart Electronic Bayer in Garbagnate: Top quartile pharma site Smart routing warehouses records reduced quality deviations by 80% and increased Real time time Real Remote maintenance OEE by 40% Digital performance tracking OEE management Predictive maintenance Augmented Bosch Automotive in Wuxi: 4IR technologies Human-robot Innovate leveraged to meet 200% demand growth in two reality collaboration production years Additive system manufacturing Energy Schneider Electric in Le Vaudreuil: Increased

optimization operator efficiency by 25% and decreased cost of maintenance by 30%

6 Source: McKinsey & Company; lighthouse sites

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 17 Value drivers for impact at scale Fourth Industrial Revolution strategy and business case The lighthouses have a Fourth Industrial Revolution strategy The lighthouses exhibit five ways in which they create linked to the creation of fundamental business value that is value from Fourth Industrial Revolution technologies. These clearly articulated and communicated and has enterprise- value-creation differentiators transform how technology is wide validity. (See annex for perspective from BMW.) implemented, how people interact with technology and how it affects business decisions, as well as results. IoT architecture built for scale-up The lighthouses have an IoT architecture built for scale- Big data decision-making up and interoperability. All information flows into one Decisions are not hypothesis-driven, but rather are based central data lake and interfaces between applications are on big data deciphered by pattern recognition – and not standardized. According to a survey from Digital McKinsey, by humans. (See annex for perspectives from Bosch standardized integration opportunities and the use of open Automotive and Maana.) standards are essential selection criteria for IoT platforms.9 (See annex for perspectives from Hewlett Packard Democratized technology Enterprise and Precognize.) Technology on the shop floor is transforming ways of working, as operators develop their own apps and solutions Capability-building to facilitate and automate their tasks. (See annex for The lighthouses have a very strong focus on capability- perspective from Tulip Interfaces and Fetch Robotics.) building. Digital academies and smart factories allow all employees to learn the basics of new digital use-cases and Agile working mode a smooth, efficient way of implementing them. Moreover, The lighthouses implement new Fourth Industrial Revolution lighthouses invest in the capacity of their workforce, use-cases in an agile working mode, which allows them ensuring that their teams have digital translators, IT/OT to do proofs-of-concept in a short time period, improve integrators and change managers. The workers are trained the solution based on findings and go quickly from pilot to for these duties, or new people are recruited. (See annex for scale-up. This is a matter of weeks versus years. In some perspectives from Tata Steel.) cases, a model factory or an experimental Fourth Industrial Revolution technology department serves as an incubator. Workforce engagement (See annex for perspectives from Fast Radius and Bosch In the lighthouses, the leaders act as role models for the Automotive.) change, communicating a clear change story through various channels and ensuring that all employees feel Minimal incremental cost to add use-cases part of the journey. Workers are actively involved in the Fourth Industrial Revolution use-cases can be deployed development and deployment of use-cases. (See annex for at minimal additional cost, allowing factories to work on perspectives from Schneider Electric.) multiple areas at once. (See annex for perspectives from Microsoft and Fetch Robotics.) The current state of lighthouses

New business models Where are lighthouses on their own process of Fourth Fourth Industrial Revolution technologies enable the Industrial Revolution innovation? It is notable that while these lighthouses to develop new business models that sites are at the forefront of the Fourth Industrial Revolution, complement and/or disrupt the traditional business and their transformation is ongoing and they recognize the value chain. (See annex for perspective from an undisclosed potential to improve even more. Survey data indicates a European consumer electronics manufacturer.) gap between their aspirations and achievements in various business drivers, with the largest gap in speed to market. Scale-up enablers For example, Figure 8 shows that only 21% of lighthouses have an advanced “speed to market” deployment, while The lighthouses exhibit four distinct capabilities, which 54% indicated that this impact dimension has a high priority. represent important success factors for their Fourth Further advances in these contexts, then, are likely on the Industrial Revolution implementation journey. These horizon. capabilities are developed deliberately during a Fourth Industrial Revolution transformation effort and often represent a top priority for senior management.

18 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Figure 8: Priority vs. deployment status of different impact dimensions

High priority Advanced deployment

Priority and deployment status Example lighthouses Impact dimensions In percent of lighthouse sites With advanced deployment in this area

88% Bosch Automotive in Wuxi Resource productivity Highest priority and progress and efficiency Siemens in Chengdu 63%

79% Procter & Gamble in Rakona Agility and responsiveness 46% Schneider Electric in Le Vaudreuil

58% Fast Radius with UPS in Chicago Value-added services and business model innovation 33% Phoenix Contact in Bad Pyrmont

54% Johnson & Johnson in Cork Speed to market Biggest gap to be closed 21% 61% BMW Group in Regensburg

50% Sandvik Coromant in Gimo Customization to customer needs 38% Haier in Qingdao

Source: World Economic Forum and McKinsey & Company lighthouse site analysis10

Three tools to scale Fourth Industrial Revolution benefits represents a significant challenge for most technologies in production and overcome pilot organizations. Findings from our previous work show purgatory that adoption of Fourth Industrial Revolution technology in production remains slow, with more than 70% of The World Economic Forum, in conjunction with industrial companies still in “pilot purgatory”. Only 29% McKinsey & Company, published a report entitled The are actively deploying Fourth Industrial Revolution Next Economic Growth Engine – Scaling Fourth Industrial technology at scale, while a greater number, 30%, had Revolution Technologies in Production in January yet to pilot or were only just about to begin. 2018. It provided essential insights into the benefits of and struggles associated with deployment of Fourth Among companies piloting, it is evident that pilots Industrial Revolution technology in manufacturing. The are often too long and/or complex. Only 15% of report presented three tools to accelerate adoption: respondents indicated pilots of less than one year; 56% the Value Delivery Engine, the Scale-Up Engine and the of respondents indicated one-to-two-year pilots; 28% Government Framework. The Value Delivery Engine, described pilots of more than two years. Most companies shaped by 39 production use-cases of the Fourth struggle to scale up due to the difficulty of aligning Industrial Revolution in manufacturing, emphasizes in terms of value and return on investment (ROI), the intelligence, connectivity and flexibility. The Scale- uncertainty of digitals’ value to performance and the cost Up Engine describes the best methods of scaling required to implement and scale. technologies, including elements of mobilization, strategy and innovation. The Government Framework identifies Clearly, emerging from “pilot purgatory” remains action areas for stakeholders to accelerate adoption of a challenge for companies seeking to achieve the technology. transformational impact of the Fourth Industrial Revolution. The tools provided by the Forum can help Manufacturing, if transformed through enhanced organizations forge ahead and realize the tremendous productivity and agility, can generate inclusive economic benefits of Fourth Industrial Revolution adoption at scale. growth and global benefits. However, achieving these

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 19 5. Successful Deployment at Scale: A Close Look at Two Lighthouses

This section will offer detailed introductions to two competitiveness through minimizing losses.” Guided by this lighthouses that represent how successful deployment of vision, two essential enablers have supported Rakona’s Fourth Industrial Revolution technology at scale can be successful Fourth Industrial Revolution innovations: achieved at very different sites. A detailed look at sample factories helps garner a deeper understanding of the broad –– Exploit the external digital environment: Rakona’s changes occurring in the manufacturing environment. These leadership team recognized among internal staff a lack of close looks can help industry leaders educate themselves the skills necessary to enable Fourth Industrial Revolution about how the Fourth Industrial Revolution plays out, with innovation, and acted accordingly. They benefitted a solid grasp of the rewards, opportunities and challenges from external knowledge on digitization and automation involved. Procter & Gamble’s Rakona plant is representative in a variety of ways: direct connection with Prague of a large multinational corporation (MNC) deploying Fourth universities, and cooperation with start-ups and student Industrial Revolution use-cases developed at both the site exchange programmes in which digitally educated and group level, whereas Rold, an SME, has executed students worked alongside Rakona employees. successful deployment in a single-site context engaging different use-cases. –– Improve people’s skill levels, shape the jobs of the future. The site developed a capability programme open Procter & Gamble (P&G) Rakona, Czech to all employees, which deepened understanding of and Republic: Growth through cost leadership affinity for new technologies such as analytics, smart robotics and additive manufacturing. This developed Procter & Gamble’s Rakona plant provides an example of specialized skills while guiding the creation of new roles how driving productivity through Fourth Industrial Revolution such as “cybersecurity leader”. adoption secured jobs by maintaining a site’s relevance in the face of shifting customer demands and increasing The nature of this “pull” approach – which differs from a top- market pressure. down “push” mentality – is intrinsic to the inclusive culture of innovation. The goal is to involve 100% of the organization in Site history digital transformation.

Located 60 kilometres from Prague and founded in 1875, Top five use-cases Rakona is Procter & Gamble’s second-oldest plant. The facility became state-owned during the communist era and Lighthouse sites vary in their applied use-cases, but all are was acquired by P&G in 1991. It produces around 4 million reaping benefits. For P&G Rakona, the top five use-cases cases of dish-washing liquids and powder along with fabric were digital direction-setting, in-process quality control, enhancers daily. Market shifts from dry to liquid washing a universal packing system, end-to-end supply chain products effected a significant drop in demand between synchronization and modelling and simulation. 2010 and 2013. Facing this challenge, the site triggered a programme to cut costs significantly in order to attract –– Digital direction-setting is a digital performance new business. This programme turned the site into a cost management system, which created impacts in both benchmark, which then led to demand for more volume technical and management systems. This addressed and ultimately the need for expansion over 2014–2016. problems including a difficult, time- consuming data- To implement such expansion successfully, anticipating collection process and decisions based on inaccurate and addressing the emerging needs required embracing data points. The digital direction-setting tool shows live digitization and automation and full use of Fourth Industrial KPIs on touchscreens directly on the shop floor, which Revolution capabilities. allows users to explore the data at multiple levels in order to understand performance drivers and identify the root An inclusive vision causes of deviations. Additionally, the system is used for operator task scheduling and tracking. This created more Having faced the challenges it did, Rakona aimed to secure rigorous execution leading to increased process reliability a resilient, sustainable future despite economic uncertainties and overall equipment effectiveness (OEE). An agile and pressures. This led to a clearly articulated vision: “We development approach with frequent tests and iterations Are Rakona, We Create the Future”. According to plant led to successful implementation throughout the factory manager Aly Wahdan, “This vision was developed hand in hand with all employees. It combines the pride in our –– In-process quality control has addressed the problems Rakona organization with the need for attractive solutions for of a manual sampling process that did not ensure the our company and our customers. This organizational vision 100% quality of each batch, thus requiring the scrapping remains actively communicated throughout the site and and reworking of an entire batch if a deviation was includes all employees in an innovative journey to improve detected after production. Additionally, it has addressed

20 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing delays in product release related to lab analysis. Quality reduced inventory by 35% in three years and increased control is now based on real-time analytics applied inventory efficiency by 7% during the previous year. It has on data collected by various sensors that monitor pH also reduced the number of returns and stock-outs and value, colour, viscosity, active level, etc. The line can improved speed-to-market of new product introductions. be stopped if a deviation is detected, and reports allow operators to ascertain batch quality for release. This –– Modelling and simulation address problems associated system, which was developed by P&G, is the first of its with the difficulty of understanding implications of kind in the industry. Enabled by IT/OT integration, it was changes to production lines, the high cost of testing first tested with a new production line and then rolled out in production setup and expensive corrections of new to legacy systems. The reduction of manual, repetitive product failures when those failures are detected only in tasks benefits employees. On an impact level, reworking operations. This use-case involves various descriptive and complaints have been cut by 50%, scrap is down and diagnostic modelling applications in use at scale and quality inspections have been reduced significantly. – as well as ongoing pilots of predictive modelling There is now zero time to release the product, which has applications – all with a vision to reach prescriptive led to a throughput time reduction of 24 hours. This use- modelling capabilities. Sample modelling applications case has been deployed for all production lines. include manufacturing outputs related to new product introductions (e.g. recommending SKU allocation –– A universal packing system, known as UPack, allows to production lines, number of storage tanks etc.), for recipe change propagation through the packaging selection of optimal conveyor speed, determination of line while the line is running. Previously, a complete ideal packaging dimensions, simulation of changes to stop of the line was required to perform changeover, the production line before actual execution, prediction which led to wait time for operators and long durations of failures before occurrence and failure of root cause involving manual setup of machines. This system, identification. Intuitive models and accessibility by developed by P&G at the group level, has been engineers are important enablers. The “learn early, fail deployed on all packaging lines. The fully integrated small” benefits of this approach have led to improved sensor, camera, scanner and wrapper system detects product design, refined problems statements and and verifies the current status of each zone. Along with optimized testing. automatic line clearance instead of paper-based data records, UPack enables each zone of the packaging Achievements, impact and the road ahead line to be in a different phase (e.g. start-up, production, empty or changeover). It also features automatic setup Rakona’s innovation experience showcases the kind of of machines based on system-stored recipe data and substantial impact that can be achieved by a lighthouse in-process quality inspection. UPack, in addition to facility embracing Fourth Industrial Revolution approaches reducing the number of unpleasant changeover tasks and technology. In three years: for operators, has cut changeover duration by 50%, enabling a 40% reduction of minimum order quantity. –– Productivity has increased by 160%. –– Customer satisfaction has increased by 116%. –– End-to-end supply chain synchronization has –– Customer complaints have been reduced by 63%. addressed several problems, including the scrapping –– Full plant cost has been reduced by 20%. of excess products at the end of a campaign, capital –– Inventory has been reduced by 43%. bound in inventory, slow speed to market and difficult, –– Off-quality products have been reduced by 42%. time-consuming manual supply chain analyses. This –– Time for changeover has been reduced by 36%. global P&G tool, which benefits from continuous improvement based on user requirements, is applied at Even with these notable achievements and energized the site management level, in each department and for by the progress to date, the site has targets for future coordination with the central planning team. The web- development. These include “lights-off” operation, based tool uses analytical modelling and simulation automated condition-based maintenance, automation to provide end-to-end visibility of the supply chain. with affordable collaborative robots and end-to-end It allows simulation of supply-chain synchronization synchronization of the supply chain. According to Yannis under different conditions – this enables identification of Skoufalos, Global Product Supply Officer, “Our objective is tension points to improve agility. It displays information to create an end-to-end synchronized supply network where on supply chain synchronization in each node, with the retail customers, P&G and suppliers efficiently operate in option to deep-dive and optimize on the level of each a seamless manner, often delivering P&G brands from the product and production line. It provides benchmarking point of manufacture to the store shelf in 24–48 hours.” and comparison among different P&G factories and lines. Rakona’s vision demands a continuous commitment to Used for all products and production lines, the tool has innovation and improvement. This lighthouse is constantly striving to live up to its motto: “We Create the Future.”

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 21 Rold Cerro Maggiore, Italy: Fourth Industrial order and traceability data exchange. This increases Revolution implementation in SME transparency and reduces manual effort. In addition, the new digital capabilities enable Rold to innovate smart, Italian company Elettrotecnica Rold Srl is an SME interconnected products that allow washing-machine OEMs with 250 full-time employees producing door locks for to offer new services to their customers. washing machines. The company’s Cerro Maggiore factory has applied digital manufacturing technology at Key enablers scale to increase productivity and quality in the context of a small organization. It demonstrates that Fourth Rold exemplifies the lighthouse characteristic of enabling Industrial Revolution innovation is possible even with improvement through change management and limited investment by using off-the-shelf technology and communication. Through initiatives aimed at transforming collaborating with technology providers and universities. the organizational mindset and improving skill levels, In Rold’s case, for example, only three programmers were the company has invested in its people and facilitated hired. their digital journey alongside the technology. Rocchitelli described some of the challenges: “First, we had to create Before and after: Transformational changes awareness among workers of the opportunity to use digital technologies at shop-floor level with an inclusive rather than Prior to its digital transformation, Rold faced external exclusive approach.” pressure in the form of increased international customer demand, which exceeded the site’s capacity. Additional Other initiatives have included industry-related events problem factors included poor visibility of actual plant with suppliers, customers, C-level executives and first-line performance and non-centralized, paper-documented managers. Rold has also carried out coaching engagements data. Operators spent significant time on manual reporting, with varied groups, from designers to engineers, employees and efficiency was limited by hypothesis-driven decisions. and outside researchers focused on problem-solving, According to Rold President Laura Rocchitelli, “The reasons creativity, change management, communication and why we introduced digital manufacturing technologies are innovation. The company has developed relationships different: first of all, it was to become more efficient in our with industrial and innovation partners and connected with production performances. The opportunity to monitor in real delegations from international universities and associations. time our manufacturing processes turned out to be essential A commitment to talent management is visible in its to reach better results both in terms of machine utilization promotion of technical internship models with secondary and performance of each machine.” and post-secondary institutions, partnerships with international and national universities and the engagement Workers on the shop floor echo her sentiments. Stefano of employees with international training and meetings. Bosani, Head of the Moulding Department, offered this observation: “The digital platform lets the supervisor and In terms of organization and governance, the company the workers have a constant eye on the process, with has committed to personnel with the capability to drive the opportunity to reach higher levels of efficiency to Fourth Industrial Revolution innovation, including software optimize the moulding process. The platform is flexible developers and electrical engineers to model, develop and continuously improving, introducing new features and implement IoT applications and industrial engineers based on users’ requests and suggestions. Workers at with digital integration skills. These efforts complement all levels participate proactively into the generation of new digital transformation initiatives sponsored by the Board of functionalities.” According to a worker in the Moulding Directors, along with extensive training on Fourth Industrial Department, “With the platform, the worker can see, in real Revolution topics for workers at various levels of the time, when the production is planned to end and therefore organization. Rocchitelli commented, “In order to complete prepare for the subsequent production order. Moreover, this shift, everyone needs to be aligned on expectations and the opportunity to input motivations for slowdowns and resilient in delivering results.” downtimes grants visibility on the process, enabling operators to define activities for production improvement Top five use-cases based on objective data rather than subjective perceptions.” –– Machine alarm aggregation, prioritization and Apart from the internal improvement, Rold’s digital analytics-enabled problem-solving has supported transformation enables its customers, washing-machine improvements in overall equipment effectiveness (OEE) original equipment manufacturers (OEMs), to improve the by providing notification of specific machine and custom digital integration of their supply chain through an automatic alarms to operators on smartwatches and interactive displays.

22 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing –– Digital dashboards to monitor OEE have facilitated Achievements, impact and the road ahead real-time monitoring of production resources distributed in different plants. These have provided the ability to The implementation of the first Fourth Industrial Revolution input reasons for stoppages of faults. use-cases has helped Rold realize substantial financial and operational impacts. Rold reported a financial impact of –– Sensor-based manufacturing reporting of KPIs has 7–8% growth of total company revenue from 2016 to 2017, allowed for digitization of any kind of production machine driven by an overall equipment effectiveness (OEE) increase along with real-time collection of production data, which of 11%. is used to build dynamic, interactive dashboards. Rold envisions a factory in which digital solutions and –– Cost modelling to support make-versus-buy automation provide the best possible support for decisions, which is in ongoing development, uses operators to maximize production output while increasing granular data collection based on IoT devices on the worker satisfaction and empowerment. Laura Rocchitelli shop floor combined with business intelligence tools to explained, “Eventually, the adoption of digital technologies increase the accuracy of Rold’s cost models. at the shop-floor level let Rold design a platform with humans at the centre.” The company hopes to use its –– Rapid design prototyping through 3D additive accumulated knowledge and expertise to support the digital manufacturing has shortened time to market for transformation of its own supply chain. Moreover, Rold new product introductions and contributed to several aims to continue growth and development through regular innovations. This has strengthened university relations best-practice exchange, both with other production sites and seen the awarding of funded research projects. and with universities at the forefront of Fourth Industrial Rold’s progress in this area made them the recipient of Revolution innovation. the 2018 Electrolux Innovation Factory (EIF) award.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 23 6. Call to Action

Why act? However, the Fourth Industrial Revolution also brings risks, which require attention from the beginning. If not managed The Fourth Industrial Revolution is essential to breaking properly, the Fourth Industrial Revolution could accelerate out of productivity stagnation the creation of a two-speed world. The gap between Fourth Industrial Revolution leaders and laggards has the Manufacturing has experienced a decade of productivity potential to exacerbate inequality in wealth production. It stagnation and demand fragmentation, coupled with an can, potentially, lead to significant displacement of workers ageing workforce in OECD countries. The time for innovation in manufacturing, make critical assets vulnerable to cyber- is long overdue. Where organizations have taken Fourth attacks and create a dominant market position for very few Industrial Revolution innovation to scale beyond the pilot artificial intelligence providers. phase, they have rapidly achieved a tremendous impact. These cases of successful scaling up have delivered Companies and governments can work in partnership unprecedented increases in efficiency, with minimal to ensure diffusion of technology and the benefits it can displacement of workers. However, most companies appear bring. Essential to this is upskilling. With 62% of existing to be stuck in “pilot purgatory”. Widespread adoption of the occupations having 30% of activities that are automatable,15 Fourth Industrial Revolution at scale, through the combined training and preparing workers for these changes is an efforts of companies and governments, can lead to sizeable important step to successful Fourth Industrial Revolution increase in global wealth production, benefitting people implementation. The Fourth Industrial Revolution has the throughout society. potential to transform factories into creative, entrepreneurial and exciting places to work. If appropriately trained and The world is under stress upskilled, today’s line workers will play valuable roles as problem-solvers and innovators. This presents the A burgeoning global population, combined with the opportunity to create a future workplace that attracts and challenges of environmental sustainability, have put the excites the best and brightest of the next generation. world under great stress in the 21st century. As World Economic Forum Founder and Executive Chairman What needs to be done? Klaus Schwab explained, “The challenges associated with the Fourth Industrial Revolution are coinciding To ensure the manufacturing environment transitions with the rapid emergence of ecological constraints, the as smoothly as possible through the Fourth Industrial advent of an increasingly multipolar international order Revolution while avoiding increased inequality and a and rising inequality.”11 A report from the United Nations “winner-takes-all” outcome, public and private leaders need Intergovernmental Panel on Climate Change (IPCC) states to act responsibly. They have the power to influence the that rapid, far-reaching and unprecedented changes in outcome of the Fourth Industrial Revolution and mitigate industry are required to limit global warming to 1.5°C, to these risks with a proactive approach. The World Economic avoid challenging impacts on ecosystems, human health Forum proposes a set of value-based actions that support and well-being associated with a higher temperature “fair” technology diffusion globally: rise.12 Similarly, a study from the Global Footprint Network highlights that current global resource consumption is Augment, instead of replace, the operator exceeding available resources by a factor of 1.7.13 Factories should deploy technologies that allow the human The Fourth Industrial Revolution presents multifaceted operators to focus on the most value-adding activities, opportunities and challenges where the human skills of decision-making and adaptability to new situations brings most value – and, at the same time, The significant benefits of the Fourth Industrial Revolution create a more attractive workplace.16 in manufacturing are well understood by many leaders from the private and public sector: 70% of industrial organizations Invest in capability-building and lifelong learning are either piloting Fourth Industrial Revolution technology in manufacturing or deploying these technologies at scale. The Fourth Industrial Revolution in manufacturing will Strategies, initiatives and programmes have been put in change many job profiles and displace workers within and place at all levels to ensure these benefits are realized. between organizations. The private and public organizations Countries have invested in, for example, national platforms must prepare the workforce for this transition, retool the to raise awareness for the Fourth Industrial Revolution in education system and invest in training as well as lifelong manufacturing, support the development of new use-cases learning to create a mobile workforce that can benefit from and enable collaboration between research institutes and the opportunities related to the Fourth Industrial Revolution. private organizations.14 This will not only help workers, but also provide benefits to the companies since a shortage of skills is the most frequent barrier preventing scale-up of technologies.

24 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Diffuse technologies throughout geographical areas and Who needs to act? include SMEs Adhering to the principles presented above, the Forum The full benefit of the Fourth Industrial Revolution in encourages public and private organizations to engage in manufacturing can be realized only if complete value chains the network of lighthouses and be part of a learning journey. and production systems are transformed, including all They provide valuable insights on how to scale technologies. geographical areas and SMEs, which are contributing 50– 17 60% of value add in OECD countries. Therefore, companies Organizations with a lighthouse should diffuse Fourth Industrial Revolution technologies through their entire production network and include They can use this asset to accelerate technology diffusion developing economies as well as suppliers of all sizes. This through the production environment and value chains by will not only lead to improved overall results, but also ensure sharing findings and best techniques. Trisector collaboration knowledge is spread more equally. Accordingly, government with governments and academia can enable and support leaders must ensure they support large and small companies this diffusion. in adopting technologies, provide incentives and collaboration opportunities with universities as well as technology providers. Organizations without a lighthouse

Protect organizations and society through cybersecurity They should define which factories will be developed to become a lighthouse in one to two years, set ambitious The US government identified cybersecurity as “one of the targets, define which support is required and track the 18 most serious economic and national security challenges”. progress. The lighthouse network can provide relevant learning With 50 billion new devices added to the internet due to as well as a tool for potential lighthouses to assess their 19 IoT, the threat becomes even more severe. To prevent maturity. Also, to accelerate this journey, these organizations 20 hackers shutting down factories or misusing critical assets, can collaborate with governments and academia. which could slow down the further advancement of the Fourth Industrial Revolution, private and public organizations Technology providers, start-ups and universities must ensure the cybersecurity infrastructure meets the highest standards. Companies should engage in cross- They can partner with the lighthouses to develop and test organizational initiatives to learn and develop cybersecurity new Fourth Industrial Revolution use-cases while learning further, not only to ensure their economic future but also to about trends and business challenges that require new protect employees, customers and local communities. solutions.

Collaborate on open Fourth Industrial Revolution An opportunity to form a new, global learning platform platforms and handle data carefully for the Fourth Industrial Revolution

Building open Fourth Industrial Revolution platforms in Private and public organizations face significant challenges collaboration with multiple private and public organizations when it comes to adapting to the Fourth Industrial reduces dependency on a few large providers and Revolution, such as scaling of technologies through avoids vendor lock-in, while ensuring access to a large environments, increasing workers’ skills and cybersecurity. data pool required to improve analytics algorithms The identified lighthouses serve as a first point of orientation. and generate insights. Data ownership can be shared But more is required: the world needs a place to go to learn among collaborators, with clear rules and a high level about the Fourth Industrial Revolution, which goes beyond of transparency in place to avoid data misuse. Also, individual efforts. companies should have a centralized data storage and avoid the creation of additional data silos that hinder Upon the call of stakeholders, a new public-private integration and new use-case deployment. partnership could build a global, scalable learning platform to provide guidance and orientation for public and private Address the climate change challenge with Fourth organizations and for society. It would enable a dialogue Industrial Revolution technologies about Fourth Industrial Revolution technology diffusion and the related challenges. This global learning platform can The world faces a significant challenge with regard to build on available assets from country-level programmes, climate change, with a recent report from the IPCC stating on networks for technology development and testing, that emissions must be cut by 45% by 2030 to keep below on programmes that work on standards and on the new 21 1.5°C warming. Factories should employ Fourth Industrial network of lighthouse factories. This is an opportunity to Revolution technologies to improve their energy efficiency, bring the different efforts together on a global level and to increase yield and reduce waste and emissions while create a true “go-to place” for any aspect related to the enhancing overall competitiveness. Fourth Industrial Revolution in manufacturing.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 25 Annex: A Look Inside the Lighthouses – Inside Perspectives

This section of the white paper provides perspectives offered by the Fourth Industrial Revolution factories. It takes a close- up look at how the various sites exemplify lighthouse characteristics. Along with summary information, comments by a range of people – from shop-floor operators to senior executives – offer additional insights about the benefits, challenges and opportunities of Fourth Industrial Revolution implementation.

Figure 9: Five different perspectives highlight the value drivers and scale-up enablers of lighthouses

Perspective of Perspective of factory-level Perspectives of union advanced factory employees such as operators representatives and engineers

Perspectives of innovative Perspectives of technology providers active senior executives in this field

1. Value Drivers

Big data decision-making

Bosch Automotive in Wuxi, China

Perspective of Perspective of factory-level Perspectives of union Bosch Automotive Diesel Systems adCo.,vanced fa ctLtd.ory (RBCD)employ eebegans such as oper atitsors journeyrepresentati vetowardss big data analysis in 2015. At the time, and engineers operational data from the shop floor, such as machine cycle times or part failure modes, was not readily available. Instead, such data typically required a significant amount of manual collection and preprocessing. As a result, RBCD’s continuous shop-floor improvement activities were impacted by delayed data availability, suboptimal data quality and soon-outdated static results covering only a limited periodPerspect ofives oftime. innovative Perspectives of technology providers active senior executives in this field Wuxi personnel soon realized that real-time data and the insights from its analysis would provide a path to better and faster decision-making. This in turn would improve their business agility, considered vital to competitiveness in the Chinese market. In order to pilot this approach in RBCD, the company decided to first apply it to machining, a process essential to many of its products. Deployed in more than 100 machines, it came with a significant roll-out potential.

Using standard tools and based on best practice already explored by other Bosch plants, the Wuxi site set up an industrial IoT framework connecting newly installed machine-condition sensors and individual cutting tool information within six months. At this point, bringing together a data analyst with a machining expert was essential. Together, they were able to visualize the data and develop customizable reports with increasingly powerful analyses, including diagnostic, predictive and prescriptive functions. For instance, plant personnel now deeply understand cutting tool cost drivers, automatically identify tool types likely to sustain extended life quantities and are able to automatically adjust inventory to future demand.

Wuxi prioritized holistic thinking beyond the classical divisions. Right from the start, therefore, they made these reports available to associates and managers from all stakeholder departments in order to collect and integrate their user

26 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing experience. By mid-2017, this approach had not only led to double-digit tool cost improvements but also, by setting an example, had inspired the organization to come forward with further big data applications, e.g. predictive maintenance or bottleneck analysis. Over the past two years, during a critical high-demand situation, these activities contributed to more than 10% output increase in selected areas and, therefore, played a role in ensuring delivery and customer satisfaction. Wuxi has also been enabling engineers to master basic data analytics in their respective domains. As a consequence, today big data analyses are supporting decision-making throughout the entire RBCD organization, including manufacturing, Perspective of Perspective of factory-level Perspectives of union logistics, quality management and controlling.advanced factory employees such as operators representatives and engineers

Christophe Chapdelaine, Senior Vice President Manufacturing and Quality Management, Bosch Automotive Diesel Systems Wuxi

Perspectives of innovative Perspectives of technology providers active senior executives “Data analytics provides us with new methods andin this field insights to improve quality, productivity and delivery. In our very dynamic and competitive business conditions, the resulting speed and agility further enhances our customers’ satisfaction.

“We are applying these methods in both the technical and commercial areas. This demands development of new competencies to maximize benefit. Moreover, the organization and leadership need to evolve in order to support this transformation. This is an exciting development for our associates and enhances our reputation as an attractive place to work. Introducing innovative solutionsPerspect withive of speed Peacrossrspective of fact oroury-level businessPerspectives givesof union us the edge in delivering products and services advanced factory employees such as operators representatives ‘Invented for Life’.” and engineers

Babur Ozden, Founder and CEO, Maana

Perspectives of innovative Perspectives of “Over the last six years we at Maana havetechno beenlogy provider sworking active withse nitheor execut world’sives largest industrial enterprises to help accelerate their digital transformation. in this field

“An enterprise on a digital transformation journey quickly learns that big data is not about quantity (volume) or speed (real time) of data; neither is it about (more) sensors, robots or automation. With that learning comes the recognition that return on investment in big data cannot be justified by mere insights.

“Industrial companies utilizing big data in a truly successful manner do so for the pursuit of dramatic improvements in operational decision-making. It enables enterprises to do something that they could not do easily and/or inexpensively before: that is, it allows for ‘globally optimizing local decisions’.

“Take, for example, decisions at a single plant to reduce rework, bottleneck and waste. Can a local decision (i.e. about rework at a single instance at single plant) be optimized at the plant level (considering that plant’s overall goals) and even, if the company has multiple plants, at the broader company level? Let’s take this ‘globally optimizing local decisions’ concept one step further: for example, should the plant start on an order received or wait, if there is a likelihood of a more lucrative order?

“Globally optimizing local decision-making is not new. What is new is that big data makes building an analytical capability at scale that is, by orders of magnitude, easier, faster and less expensive than before. Big data decision-making is for globally optimizing each local decision across the plant – and across all the plants and the enterprise.”

Perspective of Perspective of factory-level Perspectives of union advanced factory employees such as operators representatives Democratized technology on the shop floor and engineers

Natan Linder, CEO and Co-founder, Tulip Interfaces

Perspectives of innovative Perspectives of “In recent years some of the world’s largest manufacturerstechnology provider shave active made sesignificantnior executives strides in improving shop-floor productivity in this field and yield by democratizing access to shop-floor technology. Manufacturing app platforms have emerged as an important tool in manufacturers’ journey towards digital transformation. They allow manufacturing engineers to easily build shop-floor apps without the need to write code. This enables an organization’s manufacturing problems to be addressed by engineers, the stakeholders that actually understand these problems.

“These platforms relieve IT from having to custom-code applications for the shop floor, and instead focus on empowering engineers to create their own apps. The role of IT in such a world is to shepherd the bottom-up adoption of the manufacturing app platform. For shop-floor operators, the benefits are immediate. Manufacturing apps augment operators

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 27 and guide them through work. In addition to improving productivity and yield, apps enable manufacturers to bridge the skill gap. Operators are given detailed guidance and real-time performance feedback through manufacturing analytics. In this way, experienced and new operators can work side by side with manufacturing apps, guiding each operator according to their skill level.”

Figure 10: App building platforms enable democratization of technology on the shop floor

App Library Engineer-Built Manufacturing Apps

Configure App Builder & Deploy

Device Library

Continuous Iteration

Perspective of Perspective of factory-level Perspectives of union advanced factory employees such as operators representatives and engineers

Melonee Wise, CEO, Fetch Robotics

Perspectives of innovative Perspectives of “A key element of Fourth Industrial Revolutiontechnology providers act ivtechnologiese senior ex ecisutiv estheir ability to empower workers and staff on the shop in this field floor to identify opportunities for improvement and take local action. In one example, a large manufacturer had deployed autonomous mobile robots (AMRs) for a point-to-point material transfer workflow moving parts from kitting stations to an assembly cell. Workers in another cell noted that their colleagues experienced fewer delays waiting for parts, and they also noticed that the robots would wait in an idle queue between tasks. They approached the floor supervisor and requested that the robots also be assigned to support their cell.

“The AMR system employed cloud robotics technology, so it provided a simple interface that enabled the floor manager to set up and schedule the additional workflows between the kitting area and the new cell with a few clicks, without any programming or support from the IT staff. As a result of their independent and collaborative action, the workers and local staff were able to increase their productivity and also increase the utilization of the robot, making it a win for all involved.”

Agile working mode

Fast Radius in Chicago, USA

Perspective of Perspective of factory-level Perspectives of union Creating an agile working environmentadvanced factory requiresempl oybuildingees such as operat orouts nimblerepresentative s and smart teams, processes and technologies and engineers optimized through learning. Fast Radius, an additive manufacturing company based in Chicago, IL, understands how important agility is to the future of manufacturing. This is especially true for the additive manufacturing industry, where evolving environments and disruptive technologies necessitate the need for teams to become more adaptive.

Perspectives of innovative Perspectives of technology providers active senior executives To that end, Fast Radius set out to enactin this field an agile working mode that would enable its team to constantly iterate and optimize for efficiency. The agile working mode is comprised of two engines: a flexible, flat organizational structure and a technology platform that allows for scalable organizational learning. Combined, these engines have ensured that Fast Radius can adapt for flexible working environments in the following ways:

28 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Network of empowered teams: Fast Radius opted to make its organizational structure very flat. On the client-service side, the team is organized in flexible, rapidly changing client-service teams. On the operations side, the team is structured atypically for a manufacturing company. Operations is built around value streams instead of separated functions, with value- stream leaders who own end-to-end decisions in the quality of designs, engineering, machine use and production. These cross-functional teams implement new technologies and improvements in short sprints, with a strong focus on developing a minimal viable product first and then adding additional functionality iteratively, while always incorporating findings and operator feedback.

Software-enabled rapid decision and learning cycles: The critical enabler of Fast Radius’s ability to be agile is its proprietary technology platform. The platform enables the entire team to bring the principles that have revolutionized software development via agile to the physical product development world. In this instance, the software collects data and findings from every part design that is stored and manufactured in the Fast Radius virtual warehouse. The data derived from this technologyPerspective of is centralized,Perspective of factor y-industrializedlevel Perspectives of uniandon disseminated to teams to help members iterate and scale quickly, based advanced factory employees such as operators representatives on performance. This anhasd engine eralloweds them to cut traditional product-development cycles by up to 90 percent.

Lou Rassey, CEO, Fast Radius

Perspectives of innovative Perspectives of “From day one,technology we provid erunderstoods active thatsenior exec anutives agile working model would be critical to our business. Today’s manufacturing in this field is becoming increasingly intertwined with the design and supply chain. And when it comes to additive manufacturing specifically, there is constant disruption that needs to be understood and navigated in order to get to quick, achievable solutions.

That’s why we combined agile technology with agile team structures. We can accelerate new products to market for our clients by creating hundreds of designs and prototypes within weeks instead of months. We are also able to make and deliver critical parts faster than ever, with end-to-end cycle times that used to take 45 days now taking just 45 hours. All of this is made possible by stitching an agile working mode into our business – in our software and technology, in our factory designs and in how we organize our teams.”

Bosch Automotive in Wuxi, China

Perspective of Perspective of factory-level Perspectives of union Bosch Automotive Diesel Systems adCo.,vanced fa ctLtd.ory (RBCD)employ eestrivess such as oper attoors completerepresentatives the proof-of-concept (PoC) phase very rapidly. In and engineers this way, the company is able to focus its resources and to maintain an innovation speed of approximately 10 PoCs per year. In order to achieve this, they have created a Production Innovation Center (PIC) with a small assembly line, exclusively for training and development purposes. While this line is not designed for “real” production, it is fully connected with sensors, radio frequency identification (RFID)-basedPerspectives of innovative trackingPersp ectandives of enterprise resource planning (ERP) integration. As a result, technology providers active senior executives the site has the advantage of an isolatedin th(andis field therefore safe) try-out environment for many of its PoCs. By focusing on core functions supported by fast local software suppliers, Bosch finishes more than 80% of its PoCs in less than three months.

Minimal incremental cost to add use-cases

Microsoft’s manufacturing site in Suzhou, China

Perspective of Perspective of factory-level Perspectives of union At Microsoft, hardware for technology products isad vabignced fa ctbusiness.ory emInploy eefiscals such as op eryearators 2017representa titwoves well-known company products grew and engineers to over $8 billion in business. This level of impact underscores the importance of monitoring and optimizing manufacturing operations – as well as sharing information about them.

To ensure competitiveness of their products and customerPerspectives services, of innovative MicrosoftPerspectiv estransformed of the manufacturing process at its technology providers active senior executives Suzhou, Jiangsu, factory in China in three waves: in this field –– connection of equipment –– prediction using big data –– application of machine learning to create cognitive manufacturing lines

According to Microsoft, one of the most important benefits of connected equipment is the ease of setup of new use-cases with minimal investment. In the past, program managers and teams of developers wrote code and backend queries to bring a new data source into the process, which could take days, weeks or even months of work. Now, the company says, it takes one person about 15 minutes to attach a new data source to the solution.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 29 Using the connected equipment and the capability to add new use-cases in a short time period, the company added machine learning algorithms for predictive yield improvement based on production process data of individual components. These predictive patterns highlight defects, material waste and other factors. This enabled a significant yield improvement of 30% with the completion of one use-case.

Microsoft explained that the new solution has already provided manufacturing processes with many benefits, including easy initial setup, customizability, quick access to data insights, significant time savings, cost savings and increased productivity. Their factories and suppliers are integrated at an unprecedented level and personnel are constantly amazed at how quickly they can discover important Petrendsrspective of and issuesPerspect ivwithine of factory-leve lthe facilities.Perspectives of uni onWith nominal investment, the company expects these advanced factory employees such as operators representatives benefits to increase as it moves further towardsand engineers completing its cloud solution.

Darren Coil, Director of Business Strategy, Microsoft

Perspectives of innovative Perspectives of “This digital transformation has beentechnology the provid erlargests active changesenior exinecut ivmanufacturinges technology in 30 years, and it was one of the in this field easiest changes to bring to flourish. The physical connection of machines took only a couple of weeks. And once the data was available, within hours of implementing the machine learning at minimal cost, we uncovered inventory that was headed towards obsolescence. The data was always there, but we weren’t seeing it until IoT highlighted it for us. The factory has saved countless units from being scrapped by using data to make line improvements and identify quarantines. Ultimately, it saved upwards of $5 million inPersp aect iv12-monthe of periodPerspective of fact justory-leve l basedPersp onectives whatof union our five-man team accomplished. And finance is advanced factory employees such as operators representatives reporting that we’ve reduced inventory costs anbyd en gi$200neers million.”

Melonee Wise, CEO, Fetch Robotics

Perspectives of innovative Perspectives of “Industry leaders are seeking new automationtechnology providers activ etechnologiessenior ex ecthatutives can support new use-cases in digital manufacturing with in this field minimal investment. In response, a new generation of on-demand automation technologies are emerging that bring to factory floors and warehouses the kind of speed, agility and incremental cost advantages that cloud computing has brought to IT.

Figure 11: On-demand automation is described by six basic principles

Deploy Without With flexibility And unified In any facility, automation installing IT At any scale to change data you can as-is at will systems on the fly use anywhere

“In one example, a robotic material-handling system was deployed in a large facility to address a congestion and dwell time issue that was reducing output and increasing labour costs. Because the system was collaborative, autonomous and cloud-based, no changes to the facility or processes and no installation or integration of IT hardware and software were required. The pilot was deployed and operational in days, and completed in under two weeks. Based on the quick success and compelling ROI, the initial use-case was approved for full scale-up, and an additional use-case was added as part of the scale-up.”

New business models

European consumer electronics manufacturer (company name undisclosed)

Perspective of Perspective of factory-level Perspectives of union Because new business model innovations are typically self-induced business admodelvanced factory disruptions,employees sucompanych as operators leadersrepresentatives anticipate some turbulence as they adopt the changes. Therefore, it is understandable that companyand engineers leadership may desire

30 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Perspectives of innovative Perspectives of technology providers active senior executives in this field to retain levels of confidentiality until the new business model has reached a significant size. For this reason, a European consumer electronics manufacturer, which has demonstrated success in innovating a new business model, has elected to remain anonymous at the time of this white paper’s publication. The company is included anonymously as its experience can provide valuable insights and findings in this context.

It is notable that in the digital era, customers are accustomed to 24/7 online availability from vendors, along with a streamlined, customizable ordering experience enhanced by free shipping and hassle-free return policies. To remain competitive, therefore, traditional manufacturers must be able to engage customers in the design stage, lower the lead time from weeks to hours and execute an order size of one at the price of mass production, all while presenting a fluid interface complete with hassle-free shipping and returns. These capabilities are difficult or impossible to meet without employing digital technologies.

Facing these market demands, this unnamed organization found itself faced with challenges associated with traditional products and supply chains. Production of components with injection moulding required high investment in tools and long lead times for the production of new manufacturing tools. Consequently, long delivery lead times, with much capital bound in inventory, made for a high risk of inventory excess or shortage. The product design system was optimized for traditional manufacturing processes, limiting design freedom and leading to many parts requiring assembly. All of these factors combined to create a long time to market for new designs.

In order to overcome these challenges and offer the consumer a new value proposition, the company founded a new venture that produces fully customizable products down to a lot size of one at a unit cost below that of legacy products. It distributed an additive manufacturing production network, with the vision to produce directly in logistics hubs enabled by additional digital manufacturing use-cases. An integrated digital manufacturing backbone ensures fast scalability of manufacturing operations. Quality control is harmonized and automated by machine learning. A web-based configurator allows the customer to order a fully individualized product with infinite design possibilities, while production near to the end customer reduces both shipping cost and delivery lead time.

The results of this initiative have included a complete disruption of the existing value chain and the creation of a new business with several million euros worth of sales after one year. It has also effected a significant shift in current operating boundary conditions for the company, including:

–– Time for new product introduction: -90% –– Capital bound in inventory: -75% –– Manual assembly time per product: -80% –– Investment in design-specific tools: -100% –– CO2 output: -50%

This unnamed organization provides demonstrated insights into how new business models emerge in response to market changes. Many disruptive digital technologies have emerged in recent years that have affected, and will continue to affect, supply chain, product design, manufacturing and marketing. Successful implementation that captures the value of these changes, especially in a large corporate environment, involves travelling a road with many opportunities and pitfalls. Some specific insights from the manufacturer include:

–– Managing expectation is important at all levels in the company. Meaningful short-term results that fit the end-goal are preferable to overambitious goals that will lead to disappointment.

–– Experience shows the benefit of forming an autonomous team initially separate from the rest of the company. This autonomous team should have access to the company’s assets that best serve the purpose of success (e.g. brand, investment money, talent, sales channels).

–– Because corporate culture must change for these kinds of disruptions to be successful, embedded executive sponsorship at the highest level is mandatory to resolve any potential conflicts and ensure access to necessary resources until maturity is established.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 31 2. Scale-up Enablers

Fourth Industrial Revolution strategy and business case

BMW Group

Perspective of Perspective of factory-level Perspectives of union BMW’s digitalad manufacturingvanced factory em strategyployees such as op erisator sbasedrepres enontative s three pillars: focus on effectiveness, the right mindset and easy access. and engineers All digital use-cases deployed must serve to further improve its production processes in terms of quality, cost and productivity, benefitting from easy access to technology while adhering to a culture of cooperation.

Effectiveness Perspectives of innovative Perspectives of technology providers active senior executives BMW-defined implementationin this field clusters, each with its own clear strategic trajectory, determine the framework: smart data analytics, innovative automation and assistance systems, smart logistics and additive manufacturing.

With its consistent IT architecture from the top group level to the shop floor, the BMW Group’s IoT platform provides the backbone for all digital applications. The connection of facilities and sensors with the cloud is more than just a goal in itself: each new use-case implementation funds the setup of this infrastructure with a positive ROI. An important advantage of the company’s IoT infrastructure is that it allows plug-and-play setup of various use-cases, with a negligible installation effort. Staff members have access to a digital toolbox of resources they can combine and apply as they see fit. The best outcome of this system is speed.

Mindset The BMW Group operates production sites at 30 locations in 14 countries worldwide. All of the company’s vehicle plants work in keeping with the BMW production system. Consequently, the most effective innovations are those that can be applied in all plants. However, many innovations emerge at an individual plant, solving a particular issue at that location. Therefore, it is essential to promote a culture of cooperation across locations and continents. Each location contributes to the centrally coordinated production network, and solutions are implemented once at a single plant for all locations. This way, valuable and effective innovations can be adopted swiftly for all locations. The company has a term for this approach: “sharing is caring”.

Easy access Digitalization in production can be highly effective if this third principle is met. Software development can be highly complex with regard to the underlying technology. However, all applications – from artificial intelligence-supported image recognition to the analysis of sensor data or autonomous transport systems – have one requirement in common: access to data and the design of the user interface must be as simple as possible. If this criterion is not met, isolated solutions are created that require expensive training and may complicate operations.

Control logics and analyses can be generated directly at the plants, using self-service solutions that require very little effort. This principle of open systems and interfaces applies to the entire BMW production system.

Any connected facility or machine is always integrated into an overall system, in which it has to work – preferably at the least cost and effort possible. Ultimately, a digital solution must present a benefit to the process and not cause any Perspective of Perspective of factory-level Perspectives of union additional cost or effort. advanced factory employees such as operators representatives and engineers

Christian Patron, Head of Innovations and Digitalization in Production System, and Marcel Eigner, Strategy Digitalization and Smart Data Analytics Production System, BMW Group

Perspectives of innovative Perspectives of technology providers active senior executives According to Christian Patron, Head of Innovation, Digitalization, Data and Analyticsin th is atfield BMW Group, “Not everything that’s technically feasible also makes sense: The more effectively a technical solution supports and frees up staff, the better people can apply their strengths in a productive manner. Consequently, one of the main tasks in the Fourth Industrial Revolution environment is to identify highly effective applications and to standardize and scale these rapidly within an international production system. Nobody has a better take on a solution’s effectiveness than the people in the process.

“To roll out scaled projects quickly across the board, we need fundamental enablers. This is why our strategy at the BMW Group focuses on a comprehensive IoT platform and training for our staff. This combines local process expertise with a group-wide rollout strategy. In the future, artificial intelligence solutions will allow us to support people even more effectively.

32 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Deep learning models pool the knowledge of experts and make it available around the globe within a matter of seconds. Nevertheless, people will always continue to be at the centre of value creation, with their scope of creativity actually expanding further.”

Marcel Eigner, from the company’s Strategy Digitalization and Smart Data Analytics Production System, echoed Patron’s emphasis on this comprehensive approach: “When it comes to smart data analytics, we pursue a clear strategy of getting the data as closely to the people in the operational process as possible. This is primarily about data lakes that are fully accessible to the specialist departments, analytics tools in self-service solutions and hands-on data visualization. Analytics can only be effective if we have actionable insights.”

IoT architecture built for scale-up

Hewlett Packard Enterprise

Perspective of Perspective of factory-level Perspectives of union Texmark Chemicals, a customeradvanced faofctor yHewlett emPackardployees such as op erEnterprise,ators representati veoperatess a petrochemical refinery in Galena Park, Texas. The site is one of the world’s largest producersand engine ofers DCPD (dicyclopentadiene). Additionally, they are a tolling manufacturer, producing specialty chemicals for their contract customers.

Texmark is an important link in thePe petroleumrspectives of innovative product Pesupplyrspectives of chain, and because it works with regulated hazardous technology providers active senior executives materials, safety is a top priority. Texmark’sin this field vision for next-generation worker safety, production and asset management hinges on the emerging promise of the industrial internet of things (IoT). This involves sensored devices combined with advanced analytics software to generate insights, automate the environment and reduce the risk of human error. One of Texmark’s goals with IoT was to reduce planned maintenance costs by 50%.

IoT has the potential to benefit Texmark’s production streams in many ways. But specialized manufacturing needs more than one-size-fits-all solutions. IoT requires robust connectivity, architectured to support gathering data from a range of IoT devices. That connectivity must be cost-effective, however – and hardwiring a manufacturing plant can be prohibitively expensive. In addition, any technology installed in Texmark’s plant must be ruggedized and meet the company’s operational standards for safety: equipment operating at Texmark’s edge must be designed to ensure it cannot be a source of ignition. Another important IoT challenge Texmark must address is data latency. Transmitting data takes time, and in IoT seconds often count. Therefore, an IoT architecture is required that eliminates the need to transmit device data.

In order to meet these challenges and realize the benefits of IoT architecture, Texmark launched a multiphase project to implement an end-to-end IoT solution.

Phases 1 and 2 established the digital foundation by enabling edge-to-core connectivity. A wireless solution was deployed that costs approximately 50% of deploying a hardwired network. For its edge analytics, Texmark deployed an industrialized solution that provides enterprise-grade IT capabilities at the edge. In addition, Texmark’s plant control room was upgraded to enable seamless edge-to-core connectivity and to integrate its operations technology and IT into a single system.

Phase 3 (ongoing) builds on the foundation established by these technology solutions to support Texmark’s use-cases: predictive analytics, advanced video analytics, safety and security, connected worker and full life-cycle asset management.

According to Plant Manager Linda Salinas, this IoT architecture is vital to developing advanced Fourth Industrial Revolution manufacturing in the chemical industry. “We’re building a refinery of the future that combs through data and reveals how the entire plant is interconnected. It becomes likePerspect aive ofliving, breathingPerspective of fact organicory-level plantPerspectives that of union knows how it should operate; if any advanced factory employees such as operators representatives part falls out of line, it flags for intervention.” and engineers

Chen Linchevski, Co-Founder and CEO, Precognize

Perspectives of innovative Perspectives of Chen Linchevski is the Co-Founder and CEO of Precognize,technology providers act anive Israel-basedsenior execut ivsoftwarees company specializing in predictive in this field analytics for the process industry. Linchevski explained that the lessons of implementing IoT architecture in process industry plants, which collect data from thousands of sensors, are relevant and applicable to any industry implementing IoT. Based on his experience with analytical predictive monitoring software, Linchevski shared three important recommendations for building IoT architecture for scale-up.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 33 Accessibility of data. The first recommendation is that when selecting an architecture for IoT scale-up, accessibility of the data is essential. “Have an architecture that makes the data available for everybody to analyse,” said Linchevski. This “democratizing” is best achieved when barriers to the data are removed. Some equipment vendors, for example, have charged a premium to manufacturers in order to use a connector to the data collected by their machines. Linchevski suggests this presents “a call for manufacturers in the digital age to ensure the data gathered by the equipment they purchase is available to them, even if it means setting this as a criterion when selecting an equipment or sensor provider”.

Fast trial and error. The second recommendation is that IoT architecture should support fast trial and error. According to Linchevski, digital initiatives are generally implemented rapidly, which makes them distinct from the long lead times associated with more traditional industry. He explained that in the process industry, implementation is usually finished within two weeks, with the pilot running an additional three months. “Expediting this process requires availability of all the data, as mentioned above, but also APIs or other connectivity means to the data. The architecture should clarify the cybersecurity requirements and make sure that the environment is planned to allow moderate security requirements, because strict security requirements will slow down projects. Sandboxes, read-only means to the data and standalone applications (for the pilot phase) should be allowed,” Linchevski commented.

Agile architecture design. Linchevski’s third recommendation is that the design of the architecture should be agile to account for the differences in manufacturing sites, and to allow for expansion and adaptation as needs are clarified. The value should be apparent in the first application, which can then justify the next steps in building the architecture. “Trying to design every part of the architecture from the beginning will be costly and long.” Instead, Linchevski suggests, “Agree on the principles. Then start piloting applications in order to clarify the needs and expand your architecture.”

Capability-building through acquiring new skills

Tata Steel in IJmuiden, Netherlands

Perspective of Perspective of factory-level Perspectives of union When Tata Steel began its roll-out of adadvancedvanced factory analyticsemployees su (AA),ch as operat orits quicklyrepresenta tibecameves clear that there was no silver bullet, and that building up the skills of employees would be essentialand engineers to success. Rather than seeking to achieve a limited number of very large use-cases (EBIBTA impact of more than €20 million), the approach would focus on many smaller projects. This important determination would shape the nature and structure of the programme. The sheer number of projects required many workers with specialized skills. ExternalPerspect ivhiringes of innovative was impracticalPerspectives of due to the lack of capable candidates, and outsourcing technology providers active senior executives would be unsuitable due to the continuousin thnatureis field of this activity. Thus it proved necessary to train a significant number of Tata Steel employees. This gave rise to the internal Advanced Analytics Academy, which has now trained more than 200 people.

The academy was designed for versatility, and its dedicated curricula have been built to train for a number of roles, including data scientists and data engineers. Data scientists develop the skills to create the optimal model from a given dataset and for a given target function, which requires a solid understanding of statistical methods. Data engineers must make the raw data available in such a form that it can be understood and used repeatedly by the data scientists. This demands training in skills such as data preparation and data cleaning.

Along with these AA specialists, there are two groups requiring a sound level of AA understanding: digital translators and management. Translators ensure that the right business problem is communicated to the AA team and that the result of the AA team fits with the implementation constraints of the business area. They also have the important role of spotting spurious (or even faulty) correlations that typically emerge in the early phases of AA projects. It became clear that dedicated training modules were also important for the management of Tata Steel. These provide a basic understanding of AA along with the preferred style of directing AA projects. Due to significant ambiguities present in the beginning of AA projects, their management requires questions, checks and balances that differ from more conventional approaches.

Most training is delivered through conventional classroom teaching, as face-to-face interaction between students and the teachers is a vital component of the educational process. Rather than relying on generic examples, curricular material has been tuned to the Tata Steel environment, as experience has taught the company that contextualized examples are substantially more effective in conveying the underlying message or statistical method. In addition to classroom teaching, other hands-on learning applications are used. For example, the academy’s “hackathon” is part of data scientist training. In this 36-hour assignment, teams of new scientists are tasked with developing a model for a pre-engineered dataset from a real-life Tata Steel situation.

34 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Perspective of Perspective of factory-level Perspectives of union advanced factory employees such as operators representatives and engineers

Hans Fischer, CEO, Tata Steel in Europe

Perspectives of innovative Perspectives of “Advanced analytics formstechnology pr aovid erkeys active part of oursenior exIndustryecutives 4.0 strategy. We have chosen to train our domain experts to become in this field skilled in data science, rather than hiring pure data scientists. Our AA Academy has been instrumental. However, it must be noted that training data scientists is not enough; we needed to educate the management as well to ensure their ability to spot future AA opportunities and direct the projects that run in their areas. Recently, I followed the management training on advanced analytics myself. It was a true learning experience in the sense that it gave me deeper insight into the opportunities of AA. I was already convinced about the application of AA in our industry, but now I’ve experienced this first hand.”

Daiane Piva, Improvement Consultant Energy Efficiency, Tata Steel

Perspective of Perspective of factory-level Perspectives of union “I joined the Advanced Analytics Bootcamp shortlyad aftervanced fact orbeingy hiredemploy asees su chan as op energyerators re consultantpresentatives at Tata Steel Europe. After and engineers completing the AA Bootcamp, I was engaged with a relevant project. This combination of theoretical background and practical work was pivotal in setting me up for success. I believe the true power of advanced analytics, besides the algorithms, is its agile-yet-well-structured aspect. We fail fast and we learn fast. Projects are organized in a way that leads to clear end products divided into very specific intermediatePerspectives ofsteps, innovative which makesPerspectives ofit much easier to track progress. It was technology providers active senior executives stunning to see how many extra insights we can get justin thbyis field looking more closely at the data.”

Workforce engagement

Schneider Electric in Le Vaudreuil, France

Perspective of Perspective of factory-level Perspectives of union In a digital transformation, innovation must adbevanced open, factory but alsoemployee organized,s such as operators torepr esensureentatives it is adopted holistically throughout a and engineers business. Schneider Electric is implementing, testing and rolling out ideas for innovation in an organized approach in a “Smart Factory Programme”. A strong focus on workforce engagement ensures that the changes and new technologies are supported by employees and therefore adopted quickly.

Perspectives of innovative Perspectives of technology providers active senior executives For example, at the company’s Le Vaudreuil site inin this fieldFrance, it has created a 3D virtual reality model of the entire factory to use in testing and validating innovative ideas. This is then used to engage operators so they can see how their day-to-day work will change.

To promote collaboration, it is essential to devote time to access and discover new technologies, answer questions and engage discussion. Schneider uses a web-based social network that allows operators to share best methods, post and answer questions and contribute to a shared community space.

One of the main transformations the company has observed is a shift in factory management practices. The role of plant manager has traditionally been to check execution and correct issues, and to drive the workforce to achieve the plant’s KPIs. However, this is evolving as operators become empowered to make decisions using more sophisticated data and information obtained directly from machines and process. Plant managers can focus on benchmarking and analysis to drive improvements to the factory. This change is additionally supported by the interconnection of more and more smart factories, whereby each plant manager can benchmark and compare the performance of their own factory against others.

Lilian Aube, Le Vaudreuil Plant Union Representative, Schneider Electric

Perspective of Perspective of factory-level Perspectives of union “Digital transformation demands the combinedadvanced fact oreffortsy of empeopleployees such as opaterat oralls levelsrepresen taoftives the company to ensure changes are made in a sustainable manner. At Le Vaudreuil, we have seen ourand engi neworkers practices evolve quickly and have had many new tools appear in our working environment including AGVs, tablets, cobots, predictive software and an explosion of data.

“Today, our business requires new skills, and employeePerspectives of innova tiperceptionve Pe isrsp ectveryives of positive, thanks to training and opportunities technology providers active senior executives to work differently. We see fewer repetitive andin morethis field interesting tasks, better safety with hyper-secured AVGs and the ability to see production information on a mobile device in real time but away from the machines. Early involvement in new technology deployment is valuable for employees, enabling them to feel engaged in the transformation. We also expect an increase in internal promotion for our factory staff who, as they upskill, will become more valuable to the organization.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 35 “These small evolutions are showing already that, with digitization, we will be able to reduce risk, be more responsive and work differently at the plant level. At the company level, we will be more efficient and effective with our manufacturing Perspective of Perspective of factory-level Perspectives of union methods.” advanced factory employees such as operators representatives and engineers

Sophie Grugier, Senior Vice President, Global Supply Chain Operations, Schneider Electric

Perspectives of innovative Perspectives of technology providers active senior executives “Adoption of 4IR technologies in supplyin this field chains represents a new way for humans and machines to work together. Digitization of manufacturing and warehousing processes helps improve both efficiency and sustainability. Human expertise remains significantly needed for interpretation and guidance, but can be combined with artificial intelligence applied on machine and process data to generate deep insights and solve complex problems. This coexistence of people and technology is what brings to life the true value of digital transformation.

“One of the key factors in successful and widespread adoption of digitization lies with how companies manage and communicate the changes brought about by digital transformation. At Schneider Electric, involving our people in the process of digital transformation from the beginning ensures that new technologies fully support them in their day-to-day work.

“It is not obvious for all operators to handle a tablet to check the status of a machine, where they would have previously leveraged another human-machine interface. We have found through our own digitization journey that peer-to-peer learning and cross-site collaboration have been quite effective in allowing suitable change management. This accelerates the adoption and increases the efficiency of change, and demonstrates that smart and green manufacturing is possible – delivering on the global promise of a sustainable production.”

36 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing Contributors

The World Economic Forum would like to thank the following contributors, particularly the representatives from the “lighthouses” presented in this report.

Sergey Chebotarev, Vice President of Energy, NLMK Loic Regnier, Strategic Thought Leadership, Schneider Electric Shwetha Shetty, Senior Director Corporate Strategy, SAP Majid Gwaiz, General Sup., Advanced Process Solution, Saudi Aramco Christian Haecker, Head of Additive Manufacturing Industrialization, Oerlikon Steffen Lang, Global Head Technical Operations, Novartis Dr. Ravi Kumar, Associate Vice President and Head, Advanced Engineering Group, Infosys Bart Talloen, Vice President Supply Chain Strategy and Deployment, Johnson & Johnson Jeffrey Wilcox, Vice President Digital Transformation, Lockheed Martin Renee McKaskle, Senior Vice President and Chief Information Officer, Hitachi Aly Wahdan, Plant Manager, Procter & Gamble Ric Fulop, Founder and Chief Executive Officer, Desktop Metal Andreas Kunze, Chief Executive Officer and Co-Founder, KONUX Carl Vause, Chief Executive Officer, Soft Robotics Luca Cremona, Business Development Manager, Rold Melonee Wise, Chief Executive Officer, Fetch Robotics Natan Linder, Chief Executive Officer, Tulip Interfaces Andreas Braun, Department Manager, Bosch Automotive Lou Rassey, Chief Executive Officer, Fast Radius Alan Amling, Vice President Corporate Strategy, UPS Menno Van der Winden General, Manager Advanced Analytics, Tata Steel John O‘Sullivan , Global Head of IT BP Product Supply for Pharmaceuticals, Bayer Christian Patron, Head of Innovation, Digitalization, Data and Analytics, BMW Group Marcel Eigner, Strategy Digitalization and Smart Data Analytics Production System, BMW Group Neal Meldrum, Business Strategy Leader, Microsoft Matthias Roese, Chief Technologist – Mfg, Auto and IoT, Hewlett Packard Enterprise Jun Ni, Director Manufacturing Research Center, University of Michigan Krystyn Van Vliet, Professor, Massachusetts Institute of Technology (MIT) Jeremy Edwards, Professor, University of Cambridge

Project team

World Economic Forum Helena Leurent, Head of Future of Production System Initiative, Member of the Executive Committee Francisco Betti, Future of Production Lead Jayant Narayan, Project Lead, Future of Production and Global Leadership Fellow

McKinsey & Company Enno de Boer, Partner, Lead Partner World Economic Forum Tech. and Innovation for the Future of Production Adrian Widmer, Engagement Manager, seconded to the World Economic Forum Diego Hernandez Diaz, Engagement Manager, seconded to the World Economic Forum Katy George, Senior Partner Varun Marya, Senior Partner Christoph Schmitz, Senior Partner Richard Kelly, Partner Mehdi Miremadi, Partner Dinu Niculescu, Partner Forest Hou, Senior Expert

The team would like to thank Paul Cumbo for his support in writing this paper.

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 37 Endnotes

1. Aharon, Dan; Bisson, Peter; Bughin, Jacques; Chui, Michael; Dobbs, Richard; Manyika, James; Woetzel, Jonathan. McKinsey Global Institute. The Internet of Things: Mapping the Value Behind the Hype. June 2015. https://www. mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights/The%20Internet%20 of%20Things%20The%20value%20of%20digitizing%20the%20physical%20world/Unlocking_the_potential_of_the_ Internet_of_Things_Executive_summary.ashx (accessed 9 Nov 2018). 2. http://wdi.worldbank.org/table/4.2# (accessed 9 Nov 2018). 3. https://www.strategy-business.com/feature/00370?gko=e606a (accessed 9 Nov 2018). 4. Bughin, Jacques; Chui, Michael; Joshi, Raoul; Manyika, James; Seong, Jeongmin. McKinsey Global Institute. Notes From the AI Frontier: Modeling the Impact of AI on the World Economy. Discussion Paper, September 2018. https:// www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Artificial%20Intelligence/Notes%20from%20the%20 frontier%20Modeling%20the%20impact%20of%20AI%20on%20the%20world%20economy/MGI-Notes-from-the-AI- frontier-Modeling-the-impact-of-AI-on-the-world-economy-September-2018.ashx (accessed 7 Nov 2018). 5. Ibid. 6. Batra, Parul; Bughin, Jacques; Chui, Michael; Ko, Ryan; Lund, Susan; Manyika, James; Sanghvi, Saurabh; Woetzel, Jonathan. McKinsey Global Institute. Jobs Lost, Jobs Gained: Workforce Transitions in a Time of Automation. December 2017. https://www.mckinsey.com/~/media/mckinsey/featured%20insights/future%20of%20organizations/ what%20the%20future%20of%20work%20will%20mean%20for%20jobs%20skills%20and%20wages/mgi-jobs-lost- jobs-gained-report-december-6-2017.ashx (accessed 7 Nov 2018). 7. Ibid. 8. Organisation for Economic Cooperation and Development (OECD) Small Businesses, Job Creation and Growth: Facts, Obstacles and Best Practices, Paris. https://www.oecd.org/cfe/smes/2090740.pdf (accessed 9 Nov 2018). 9. Bolz, Leah; Freund, Heike; Kasah, Tarek; Koerber, Bodo. Digital McKinsey. Leveraging Industrial Software Stack Advancement for Digital Transformation, August 2018. https://www.mckinsey.com/~/media/mckinsey/industries/ advanced%20electronics/our%20insights/iiot%20platforms%20the%20technology%20stack%20as%20value%20 driver%20in%20industrial%20equipment%20and%20machinery/final-report-leveraging-industrial-software-stack- advancement-for-digital-transformation.ashx (accessed 9 Nov 2018). 10. Data from responses by Lighthouse sites to questionnaire designed and survey conducted by the World Economic Forum and McKinsey. 11. Schwab, Klaus. “Grappling With Globalization 4.0.” Project Syndicate. 5 Nov 2018. https://www.project-syndicate.org/ commentary/globalization-4-0-by-klaus-schwab-2018-11 (accessed 13 Nov 2018). 12. “Summary for Policymakers of IPCC Special Report on Global Warming of 1.5°C Approved by Governments.” International Panel on Climate Change (IPCC) press release. 8 October 2018. https://www.ipcc.ch/pdf/session48/ pr_181008_P48_spm_en.pdf (accessed 21 Nov 2018). 13. “Past Earth Overshoot Days.” Earth Overshoot Day, Global Footprint Network 2018. https://www.overshootday.org/ newsroom/past-earth-overshoot-days/ (accessed 21 Nov 2018). 14. “Key Lessons from National Industry 4.0 Policy Initiatives in Europe.” Digital Transformation Monitor. European Commission. May 2017. https://ec.europa.eu/growth/tools-databases/dem/monitor/sites/default/files/DTM_Policy%20 initiative%20comparison%20v1.pdf |accessed 13 Nov 2018). 15. Bughin, Jacques; Manyika, James; Woetzel, Jonathan. McKinsey Global Institute. Jobs Lost, Jobs Gained: Workforce Transitions in a Time of Automation. December 2017. https://www.mckinsey.com/~/media/mckinsey/featured%20 insights/future%20of%20organizations/what%20the%20future%20of%20work%20will%20mean%20for%20jobs%20 skills%20and%20wages/mgi-jobs-lost-jobs-gained-report-december-6-2017.ashx (accessed 7 Nov 2018). 16. Ellingrud, Kweilin. “The Upside of Automation: New Jobs, Increased Productivity and Changing Roles for Workers.” Forbes. 23 Oct 2018. https://www.forbes.com/sites/kweilinellingrud/2018/10/23/the-upside-of-automation-new-jobs- increased-productivity-and-changing-roles-for-workers/#130325c57df0 (accessed 12 Nov 2018). 17. “Enhancing the Contributions of SMEs in a Global and Digitalized Economy.” OECD. Meeting of the OECD Council at Ministerial Level. Paris, 7–8 June 2017. http://www.oecd.org/mcm/documents/C-MIN-2017-8-EN.pdf (accessed 28 Nov 2018).

38 Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 18. “Remarks by the President on Securing Our Nation’s Cyber Infrastructure.” The White House, Office of the Press Secretary. May 29, 2009. https://obamawhitehouse.archives.gov/the-press-office/remarks-president-securing-our- nations-cyber-infrastructure (accessed 12 Nov 2018). 19. Poppensieker, Thomas; Richter, Wolf; Riemenschnitter, Rolf; Scherf, Gundbert. “Digital and Risk: A New Posture for Cyberrisk in a Networked World.” McKinsey & Company. March 2018. https://www.mckinsey.com/de/~/media/ mckinsey/locations/europe%20and%20middle%20east/deutschland/publikationen/2018%20compendium/a%20 new%20posture%20for%20cybersecurity%20in%20a%20networked%20world/kompendium_03_cyberrisk-2.ashx (accessed 12 Nov 2018). 20. Perlroth, Nichole and Krauss, Clifford. “A Cyberattack in Saudi Arabia Had a Deadly Goal. Experts Fear Another Try.” The New York Times. 15 Mar 2018. https://www.nytimes.com/2018/03/15/technology/saudi-arabia-hacks- cyberattacks.html (accessed 13 Nov 2018). 21. “Global Warming of 1.5ºC”. Intergovernmental Panel on Climate Change. 8 Oct 2018. http://www.ipcc.ch/report/sr15/ (accessed 12 Nov 2018).

Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing 39 The World Economic Forum, committed to improving the state of the world, is the International Organization for Public-Private Cooperation.

The Forum engages the foremost political, business and other leaders of society to shape global, regional and industry agendas.

World Economic Forum 91–93 route de la Capite CH-1223 Cologny/Geneva Switzerland

Tel.: +41 (0) 22 869 1212 Fax: +41 (0) 22 786 2744 [email protected] www.weforum.org